The Hindu Business Line : Changes in the DDT regime

Hitherto, DDT has been having a cascading effect, what within a multi-tier holding/ investment company structure everyone having to pay DDT on the same dividend income down the line.

To wit, A Ltd is the holding company of B Ltd from which it has received a dividend of Rs 100 crore. To be sure, B would have paid DDT on it. Now when A pays dividend of, say, Rs 200 crore, which obviously includes Rs 100 crore received from B, it has to pay a fresh dose of DDT on the entire dividend distributed.

This anomaly is sought to be corrected. Now A Ltd would be required to pay DDT only on Rs 100 crore. There is a rider of course. A Ltd, in the above example, itself should not be a subsidiary of another company. Therefore, even after the amendment there is no solace for convoluted multi-tier holding company arrangements except that the ultimate holding company would of course get relief.

There is one more rider. The holdingsubsidiary relationship must be through majority shareholdings and not through other means mentioned in Section 4 of the Companies Act.

CHARITY SHELTER

Are educational institutions established as charitable trusts now required to pay tax?

Shruti Bhatnagar, New Delhi

No, contrary to the popular perception erroneously engendered ever since the Budget was presented, the truth is relief to poor, medical relief and education have been left severely alone so much so that they can carry on as hitherto.

Only those trusts which have been avoiding payments of tax from business on the ground that they have been set up for advancement of objects of public utility have been tamed and brought under the tax net. One wishes educational institutions and hospitals too run on commercial lines were brought under the tax net and not allowed to take shelter under charity.

LODGING FOR BACHELORS

Our company has been providing shared accommodation for bachelors at sites without any recovery towards rent and also giving HRA element through the pay-slip. While calculating the tax liability we are not considering the value of bachelor accommodation and have not given any HRA exemption to the employee.

Please clarify the tax implications on bachelor accommodation under the Income-Tax Act, 1961 and FBT (fringe benefit tax) on rent paid to owners of bachelor accommodation at site.

Kiran, Guntur

If the accommodation is provided to the employees at the project execution site of temporary nature and the plinth area of each accommodation does not exceed 80 square feet and the project site is 8 km or more away from the local limits of a municipality, then this is a tax-free perquisite to the employees concerned.

Since they have been bailed out of the clutches of tax, the employer will have to pay FBT in terms of Section 115WB(2)(G) on 20 per cent or 5 per cent (5 per cent in case the pharmaceuticals or computer software businesses) of the lodging expenses thus incurred on the employees.

If, however, the employees do not make the grade for exemption by reason of the accommodation being within 8 km from the limits of municipality or by reason of being bigger than the prescribed size, etc, then obviously the FBT would not be payable because the law is clear - the two taxes are mutually exclusive.

HRA would be fully taxable because evidently no employee would make the grade for exemption, as no rent is paid by them.

S. MURLIDHARAN

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