The Hindu Business Line : Notice pay reimbursement comes at a price

I worked for two companies in the previous year, 2006-07. The first company required me to give a notice pay when I wanted to move to the second company.

The first company did not allow the notice pay as a deduction in computing the TDS (tax deducted at source) on the salary. The notice pay that I paid to the first company was reimbursed to me by the second firm, where I now work.

While computing the TDS, my current employer has taken the notice pay reimbursed to me as income and deducted tax. This, in my view, amounts to taxing the same income twice. Is this correct?

Will I be able to claim refund of the tax deducted while filing my return for the year? — J. P. Mehrothra

The view taken by you is not correct. The sum received by you from your present employer will be taxable in your hands.

There is no provision in the Income-Tax Act to treat such sum as not taxable though you may term it as a mere reimbursement of a sum incurred by you to get relieved from one employer and to take up employment with another.

The first company where you worked is also right in not allowing you a deduction on the notice pay as there is no provision for allowing such a deduction in computing the income under the head salaries.

There is no question of taxing the same income twice. It is that the amount paid by you to your first employer is not an allowable deduction in computing income under the head salaries while the amount received by you from the second employer, though termed a reimbursement, is taxable as income in your hands.

You will not be able to claim refund for the the tax deducted at source by your employers in respect of the notice pay paid by you and subsequently reimbursed to you by your second employer.

I purchased a residential house on November 2, 2004 for Rs 33.20 lakh. I propose to sell this house after holding it for three years, in November 2007, and expect to realise Rs 70 lakh on its sale.

I have also booked a flat on February 15, 2006. The total cost of the flat is Rs 22 lakh. I have already paid Rs 8 lakh to the builder but I am not likely to get possession of the flat by November 2009.

In this case since the possession of the flat will be handed over to me only beyond two years from the sale of my existing house, I am told that I may not be able to get the exemption under Section 54 on reinvestment in another residential house.

Please note that I would have paid almost all of the consideration for the flat within the two-year period from the date of sale of the house but it is only the possession, which will not be handed over to me. Will I be eligible to claim the exemption? — Anil

Section 54 which allows you an exemption in respect of long term capital gains on sale of a residential house and on reinvestment in another residential house permits you the reinvestment by way of purchase within one year before or two years after the transfer of the residential house or by way of construction within three years from the date of transfer of the residential house. The requirement insofar as construction is concerned is that the same must be completed within the said three years.

You may note that purchase of a flat will amount to construction of a building for the purpose of claiming the exemption under this Section.

This view is supported by the decision of the Delhi High Court in CIT v Smt. Brinda Kumari (2002; 253 ITR 343; Delhi).

The Delhi High Court has also in CIT v Smt Bharati C. Kothari (2000; 244 ITR 352; Delhi) taken a view that for the purpose of exemption under Section 54, the assessee may construct a house himself or get it constructed through a third party.

Based on this view of the courts, it can be understood that so long as the possession of the flat is taken within three years from the date of sale of the residential house, the exemption can be claimed by you without any difficulty.

You may also note that the fact that you have booked the flat before the sale of the residential house will not affect your claim for exemption since the Section only requires the completion of the construction within three years after the transfer of the residential house. The fact that the construction commenced before the sale will not in any way hinder your claim for exemption.

I am a housewife. My husband purchased a house property and had taken a housing loan for this purpose.

He has since repaid the entire loan. He proposes to gift the house to me. Will there be any tax implication on such gift?

If my husband after gifting the property enters into a rental agreement with me, will he be able to claim the exemption under Section 10(13A) since he receives House Rent Allowance? — Sahana

There will be no tax implication when your husband gifts the property to you.

After the gift is made to you, if your husband is paying you rent it should also be possible for him to claim the exemption under Section 10(13A) in respect of the rent paid as he is in receipt of HRA from his employer.

You may, however, note that the rental income will be clubbed in his hands by virtue of Section 64(1), which provides that where there is a transfer of an asset by one spouse to another for inadequate consideration, the income from such asset will be included in the hands of the transferor.

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