Medical allowance is not exempt from tax irrespective of whether you are actually spending the same for medical treatment or not. Had your employer given the same amount as reimbursement subject to a cap of Rs 15,000 per annum, which is what he is in any case paying you now in the form of an allowance, he would have done a great service to his employees because medical reimbursements up to Rs 15,000 are tax-free per year.

What is arbitrage? Please explain with examples.

I am an undergraduate.

Vaishnavi Vasudevan,

Hyderabad

Suppose a share is listed in two stock exchanges with one being dormant and reactive. In such a scenario, the quotation in the dormant stock exchange tends to be lower.

This gives one the opportunity to buy there and sell it in the other stock exchange which begets a higher quotation for the same share.

Similarly, if a GDR of an Indian company comprising two shares quotes at $50 whereas the quotation in the Bombay Stock Exchange for the underlying scrip is Rs 1,200, a non-resident would do well to surrender his GDR with the Indian company and get the underlying shares and then sell them on the BSE if he has the intention to sell. This is an excellent arbitrage opportunity for him begetting $60 assuming the exchange rate is Rs 40 a dollar. Because he would have got two shares for each GDR and got Rs 2,400 on selling them.

Why have employers been specifically allowed, if they want, to recover FBT (fringe benefit tax) on ESOP from the employees concerned while the same facility has not been given for other forms of benefits enjoyed by them on which too FBT is payable by the employer?

S. K. Saranathan, Chennai

That is a very good question. In fact, this special permission vindicates what people like yours sincerely have all along been saying — ESOP is not a common benefit defying taxation in the hands of employees.

It is easily identifiable with the benefiting employees and ergo, in all fairness to the employer, it is the employee concerned who should be directly taxed.

It seems the logic of this argument has impressed the Finance Minister. So, to unburden the employer, so to speak, and to concomitantly burden the benefiting employee, he has given special permission to pass on the burden to the employee concerned.

S. MURLIDHARAN

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