The Hindu Business Line : Food coupons no grist to the tax mill

The company for which I work gives food coupons (such as Sodexho and Times Ticket) to its employees and does not treat this as a taxable perquisite in the hands of the employees.

Is this correct? Is there any limit beyond which it will be taxable in the hands of employees? — Hemanath Thakar

Food coupons which are not transferable and usable only at eating joints or outlets is not to be treated as a perquisite and taxed in the hands of employees.

Such coupons, which are prepaid, are also not liable for FBT. There is no limit on the amount that can be paid by way of such coupons and would be non-taxable in the hands of employees.

I purchased a second-hand flat in Mumbai in February 2005. I now propose to sell it. The price that I am likely to realise would be twice that I had paid to purchase the flat.

I also propose to acquire another flat, which is under construction. I had taken a loan to purchase the flat that I am proposing to sell and have been claiming tax benefits on the repayment of the loan. What will be the tax implications on the sale of the flat and on reinvestment in another flat? — Suraj Pratap Singh

Since you have held the flat which you now propose to sell for less than 36 months, the gain on the sale will be treated as short-term capital gains and charged to tax at the normal rates applicable to you.

The fact that you are reinvesting the proceeds in acquiring another flat will not be of any help to you and no exemption can be claimed since the gain is short term.

I work for an Indian company and am on deputation in the UK. To meet my expenses of stay in the UK, I am paid a living allowance that is taxable in the UK.

Will any unspent allowance brought into India be taxable in India? How does the Income-Tax Act define a resident and an ordinarily resident and a resident but not ordinarily resident? — Vishal Jain

The living allowance will not be subject to tax in India. The Board has through Circular No.8 of 2005 dated August 29, 2005, in answering Query No 79, clarified that per diem allowance given by an employer to employees on tour abroad will not be taxable in the hands of employees even if the same is not fully spent. It has however clarified that the allowance will be subject to the Fringe Benefit Tax.

The Board has also clarified that the surplus remaining in the hands of the employees will not be taxable in their hands.

Under Section 6 of the Income-Tax Act, an individual is resident in India if he satisfies any one of the following conditions:

He is in India for 182 days or more in the previous year.

He is in India for 60 days (182 days if he leaves India to take up employment outside India if he is a citizen of India or being outside India comes to India on visit if he is a citizen of India or a person of Indian origin) or more in the previous year and for 365 days or more in the four years preceding the previous year.

He is resident but not ordinarily resident if he satisfies any of the following conditions:

He is non-resident in nine out of the 10 years preceding the previous year

He is in India for 729 days or less in the seven years preceding the previous year.

If an individual is resident but is not ordinarily resident then he would be resident and ordinarily resident. An individual who is not a resident would be a non-resident.

What will be the tax treatment when a keyman insurance is assigned to the keyman on payment of the surrender value or out of consideration being love and affection?

Will the tax exemption be available if the keyman surrenders the policy after it is assigned to him by his employer organisation? — Prabhu Ganapathy

Section 10(10D) allows an exemption on any sums received under a life insurance policy including any sum allocated by way of bonus on such policy. One of the exclusions is in respect of a sum received under a keyman insurance policy.

The explanation to Section 10(10D) defines a keyman insurance policy to mean a life insurance policy taken by a person on the life of another person who is or was the employee of the first mentioned person or is or was connected in any manner whatsoever with the business of the first mentioned person.

Even a plain reading of this definition makes it clear that to examine whether a life insurance policy is a keyman insurance policy, what is to be looked at is whether the policy when taken was taken by one person on the life of another and where that other person is a present or past employee or is connected with the person taking the policy in his business.

This would mean that if the policy when taken was a keyman insurance policy within the meaning of the definition it would continue to be so even after it is assigned to the employee.

Its character will not change on assignment for as already explained what is relevant is the nature of the policy when it was taken.

If it was a keyman insurance policy when taken, it will remain so even after assignment.

Thus, the sum received by the employee will be under a keyman insurance policy when it is surrendered and will therefore not be eligible for the exemption under Section.10(10D) thus making it taxable in his hands.

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