The Hindu Business Line : FBT on staff's family tour

As per our company policy whenever employees are on official tour whether within India or abroad, they are allowed to take their families with them. And, in all cases, their travel, conveyance, and boarding and lodging expenses are borne by the company. In this connection, please advice what will be the liability towards the individual for taxation of the employee? Will it be added to the income of the employee as perquisites or not? What will be the liability of the company under fringe benefit tax (FBT)? And can such expenditure be claimed as business expenditure by the company?

Subash Rastogi, email

The employee himself doesn't attract any tax, with the liability having been shifted to the employer by the regime of FBT. Having paid FBT, the entire amount becomes available for deduction as business expenditure.

In equity and fairness, which courts in India steadfastly uphold, the I-T Department, having imposed FBT, simply cannot subject the same expenditure to disallowance to the extent it is attributable to personal benefit of the employees. Indeed, it was to check the tendency to allow employees to go on a binge at company's expense that the regime of FBT was ushered in. Having extracted its pound of flesh, the Department cannot ask for more because that would amount to inflicting a double whammy.

NRI's worry

I am a non-resident Indian (NRI) since the last six years. I have income in India for the year 2004-05 under (i) short-term and long-term capital gain from Indian shares and mutual funds; (ii) dividend income from Indian shares and mutual funds and (iii) interest on bank savings. I have purchased and sold all shares through Portfolio Investment Scheme (PINS) account and recognised stock exchanges only. I have income-tax refund due, of around Rs 30,000 for financial year (FY) 2004-05. My tax consultant filed my income tax return on March 8, 2006, as `Resident' not as an NRI.

When I asked him about this, he told me that it makes no difference and you can file return as Resident also and the last date for filling return is March 31, 2006. Please clarify whether I can file my income-tax return as a Resident also, if yes, what about my salary income in Dubai? Will the I-T Department treat it as tax-free income? (During the year I have sent money through my NRI account only.)

Can I file my I-T return up to March 31, 2006, for FY 2004-05? And up to March 31, 2007, for FY 2005-06? Will I be eligible for tax refund?

Sachin Shahne, Dubai

Chapter XII-A of the Income-Tax Act, 1961 contains a special dispensation for NRIs. You could have taken advantage of its lenient mechanism. For example, on interest income, the rate of tax is a flat 20 per cent and not the usual slab rates.

Again, one does not have to file return if all that one has earned in India is investment income and long-term capital gains. Of course, you have short-term gains as well which rules out exemption from the requirement to file return.

Moreover, by labelling you as a resident your consultant has exposed you to a potential tax liability which is simply not there — tax on your income in Dubai subject to the double taxation agreement with that country. The point is, in tax matters one cannot afford to be flippant or blasé. Yes, one can file one's return up to March 31 of the assessment year without attracting penalty, but subject to interest if tax is outstanding.

Tax collected in excess has to be refunded and delay in filing the return after the due date is no justification of its denial. You can now file a revised return to undo the mistake committed in the original return of erroneously describing yourself as a Resident while being a non-resident. A revised return to rectify honest mistakes can be filed any time within a year from the end of the relevant assessment year.

Gratuity payment

We are a private limited company and opted for the Group Gratuity Scheme offered by LIC since 1999.

Two of our employees on completion of five years of continuous service have resigned and have been paid gratuity by the LIC. Can they take shelter under the Rs 3.50 lakh exemption of the Income-Tax Act even though gratuity paid is otherwise than on retirement or superannuation? If not, is the company under obligation to deduct tax at sources, and at what rate? That is, is it at the applicable slab of the employee or the marginal rate?

Ganeshan, email

Gratuity is payable under the Payment of Gratuity Act, too, on resignation of an employee who has put in not less than five years' of continuous service. In the event, exemption from income-tax is very much on inasmuch as the tax law hinges upon the Payment of Gratuity Act while conferring the exemption.

(ASK! Send in your queries on accounting, auditing, corporate law and taxation to ask@thehindu.co.in.)

http://MentorQA.blogspot.com

S. Murlidharan

More Stories on : Income Tax | Taxation | NRIs | For the Asking

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Inclusive growth

Service tax on residential complex

Not a tough nut to crack

Learn to work with people

Beneficial concern

Search for job satisfaction

Responsible use of e-mail

Just Do IT

FBT on staff's family tour

Reliance enters retail

Books can stretch your mind irreversibly