Gifts to Son in law & Daughter in law

Question :

a) Please advise whether I can gift Rs 50,000 each to my son-in-law and daughter-in-law in one day? If so, is there any tax liability on the donee or donor ?

b) What is probating of a will ?

Answer :

a) There would be no tax liability in respect of the amount gifted by you to your son-in-law and daughter-in-law as far as both these recipients are concerned. However, income earned on the amount gifted to your daughter-in-law will be included in your total income under the provisions of Section 64 sub-section (1) (vi) of the Act.

b) The probate of a will is a process whereby the will executed by a person is legally recognised to enable the beneficiaries become legal owner of the property in respect of which the will has been executed. It may also be defined as an official process approving that the will is valid.
Source : The Tribune/16.10.2017


Posted for employment abroad – Double taxation applicability

Question :
My son is working is an MNC posted in Bangalore. Now the company has posted him in Singapore by giving him fresh appointment. He will join the new job in Singapore by the end of October or November, 2017 in the same company. My query is what will be his tax liability in India and Singapore. Please also clarify whether dual taxation will be applicable or not ?

Answer :
Your son would be liable to pay income tax on his salary income for the financial year 2017-18 including income earned by him for the months of October/November 2017 to March 2018 received in Singapore. This is on account of the fact that your son would be resident in India for the financial year 2017-18. In case he becomes liable to pay tax in Singapore on his salary earned in that country, the amount of tax paid by him in Singapore can be claimed as a relief against the total tax payable in India by your son in respect of his income for the assessment year 2018-19 (financial year 2017-18). The relief is allowed only in respect of the tax payable on the income which is doubly taxed.

Source : The Tribune/16.10.2017

No rebate u/s 87A if total income exceeds Rs 5 lakh

Question :
I received in the FY 2015-16 a sum of Rs 7,20,000 in which Rs 1,16,000 belongs to arrears for the previous FY 2014-15. As a result, I am left with Rs 6,04,000 (Rs 7,20,000 minus Rs 1,16,000 arrears) for the FY 2015-16.
I have invested Rs 1,50,000 u/s 80C in the FY 2015-16. After taking into consideration Rs 1,50,000 and Rs 1,16,000, I am left with a sum of Rs 4,54,000 for this FY. My query is under these circumstances, am I eligible for the rebate of Rs 2,000 u/s 87A for the FY 2015-16 ?

Answer :
Your total income after claiming deduction allowable under Section 80C of the Income-tax Act 1961 (The Act) would be Rs 5,70,000. The rebate under Section 87A of the Act is allowable to an individual resident in India whose total income does not exceed Rs 5 lakh. You would, therefore, not be entitled to a rebate under Section 87A of the Act for the assessment year 2016-17 as your total income including arrears of salary would be more than Rs 5 lakh.

Source : The Tribune/16.10.2017

Tax Liability of Retirement Benefits.

Retirement savings plan is an essential part of the employees future financial security. Every employee must know about the various retirement benefits that he would be getting from his employer and their tax implication as well. Employees should understand and monitor their retirement plans and benefits. Retirement benefits received by an employee are taxable under the head Salary.
Here are some of the retirement benefits-

Pension Income-
Pension is the income received by an employee after his retirement on account of his past service. Taxability of pension depends on whether it is periodic (monthly) or lump-sum. Pension received in periodic payment is called as uncommuted pension which is fully taxable in case of government and non-government employees.

When a lump-sum payment is made in lieu of a periodical pension, it is termed as commuted pension. It is exempted for government employees. In case of other employees, if that employee is also receiving gratuity, then 1/3rd of the commuted pension would be exempt from tax otherwise, half of the commuted pension will be exempt from tax. Family pension received by family members after the death of employee shall be chargeable in the hands of recipient under the head “other sources”. Deduction of Rs. 15,000 or 1/3rd of such pension, whichever is lower shall be allowed.

Gratuity is a lump-sum payment made by an employer for the appreciation of the services rendered by his employee. Gratuity received is exempt u/s 10(10) Gratuity received by a government employee is completely exempt from tax. For other employees, the least of the following is exempt from tax
Amount actually received as gratuity,
Half month’s average salary for each completed year of service, or
Maximum limit of Rs. 10,00,000

Leave Encashment-
Leave encashment is the payment for encashment of unused leave of an employee. Encashment of leave during the employment is fully taxable. At the time of retirement, leave encashment received by government employee is fully exempt from tax. When received by non-government employees, the least of the following is exempt:
Leave encashment actually received,
10 months average salary,
Earned leaves entitlement not exceeding 30 days for every completed year of service, or Maximum limit of Rs. 3,00,000

Voluntary Retirement Compensation-
Benefits derived by an employee by opting Voluntary Retirement Scheme (VRS) can also be considered as retirement benefit. VRS is availed by employees having age of 40 years & completing 10 years of service. The amount of exemption is the actual amount of compensation received or Rs. 5,00,000, whichever is lower. The exemption is available to an employee only once.

Retrenchment Compensation-
Any compensation received at the time of retrenchment is exempt from tax to the extent of minimum of the following
Amount actually received,
Amount calculated based on 15 days average pay for every completed year of service or part thereof in excess of six months, or
Maximum limit of Rs. 5,00,000

Salary Income – Common issues

A salary is a form of periodic payment from an employer to an employee, which may be specified in an employment contract. It is contrasted with piece wages, where each job, hour or other unit is paid separately, rather than on a periodic basis. From the point of view of running a business, salary can also be viewed as the cost of acquiring and retaining human resources for running operations, and is then termed personnel expense or salary expense. In accounting, salaries are recorded in payroll accounts.

Salary is a fixed amount of money or compensation paid to an employee by an employer in return for work performed. Salary is commonly paid in fixed intervals, for example, monthly payments of one-twelfth of the annual salary.
Here we have Considered Some of the Frequently asked Question on Taxability of Salary Income under the Income tax Act,1961

What is considered as salary income?
What are allowances? Are all allowances taxable?
Allowances are fixed periodic amounts, apart from salary, which are paid by an employer for the purpose of meeting some particular requirements of the employee. E.g., Tiffin allowance, transport allowance, uniform allowance, etc.
There are generally three types of allowances for the purpose of Income-tax Act – taxable allowances, fully exempted allowances and partially exempted allowances.

My employer reimburses to me all my expenses on grocery and children’s education. Would these be considered as my income?

Yes, these are in the nature of perquisites and should be valued as per the rules prescribed in this behalf.

During the year I had worked with three different employers and none of them deducted any tax from salary paid to me. If all these amounts are clubbed together, my income will exceed the basic exemption limit. Do I have to pay taxes on my own?

Yes, you will have to pay self-assessment tax and file the return of income.
Even if no taxes have been deducted from salary, is there any need for my employer to issue Form-16 to me?
Form-16 is a certificate of TDS. In your case it will not apply. However, your employer can issue a salary statement.

Is pension income taxed as salary income?

Yes. However, pension received from the United Nations Organisation is exempt.
Is Family pension taxed as salary income?
No, it is taxable as income from other sources.
The bank.

Are retirement benefits like PF and Gratuity taxable?

In the hands of a Government employee Gratuity and PF receipts on retirement are exempt from tax. In the hands of non-Government employee, gratuity is exempt subject to the limits prescribed in this regard and PF receipts are exempt from tax, if the same are received from a recognised PF after rendering continuous service of not less than 5 years.

Are arrears of salary taxable?

Yes. However, the benefit of spread over of income to the years to which it relates to can be availed for lower incidence of tax. This is called as relief u/s 89 of the Income-tax Act.

Can my employer consider relief u/s 89 for the purposes of calculating the TDS from salary?

Yes, if you are a Government employee or an employee of a PSU or company or co-operative society or local authority or university or institution or association or body. In such a case you need to furnish Form No. 10E to your employer.

My income from let out house property is negative. Can I ask my employer to consider this loss against my salary income while computing the TDS on my salary?

Yes, however, losses other than losses under the head ‘Income from house property’ cannot be set-off while determining the TDS from salary.
It is taxable if received while in service. Leave encashment received at the time of retirement is exempt in the hands of the Government employee. In the hands of non-Government employee leave encashment will be exempt subject to the limit prescribed in this behalf under the Income-tax Law.

Are receipts from life insurance policies on maturity along with bonus taxable?

As per section 10(10D), any amount received under a life insurance policy, including bonus is exempt from tax. However, following receipts would be subject to tax:
1. Any sum received under sub-section (3) of section 80DD; or
2. Any sum received under Keyman insurance policy; or
3. Any sum received in respect of policies issued on or after April 1st, 2003, in respect of which the amount of premium paid on such policy in any financial year exceeds 20% (10% in respect of policy taken on or after 1st April, 2012) of the actual capital sum assured; or
4. Any sum received for insurance on life of *specified person (issued on or after April 1st 2013) in respect of which the amount of premium exceeds 15% of the actual capital sum assured.
* Any person who is –
i) A person with disability or severe disability specified under section 80U; or
ii) suffering from disease or ailment as specified in the rule made under section 80DDB.
Following points should be noted in this regard:
• Exemption is available only in respect of amount received from life insurance policy.
• Exemption under section 10(10D) is unconditionally available in respect of sum received for a policy which is issued on or before March 31, 2003.

No tax on salary deducted if notice period not served

I-T Act says salary income is taxable on a due basis irrespective of whether it was paid or not.

If you have not served during the notice period and your employer has deducted salary for the same, then you don’t need to worry about paying tax on the deducted salary.

In its recent ruling, the Income Tax Appellate Tribunal (ITAT) that takes up disputes related to income tax issues has clarified that an employee was not required to pay tax on salary deducted by employer for not serving notice period, according to a report in The Times of India.

The report cited two companies that at the time of full and final settlement had deducted salary for the month during which employees did not serve the notice period.

“Under the income tax act, salary income is taxable on a due basis, regardless of whether it has been actually paid to an employee or not,” the report said. After an employee puts in their papers and fails to serve contractual notice period, the employer cuts salary for the said month.

Likewise, tax authorities do not calculate such salaries for assessment of income tax. “The ITAT has recognized the concept of real income, which is well accepted under I-T laws,”

By : The asian age / Apr 21, 2017

Tips collected by hotel from customers and paid to employees couldn’t be taxable as salary

“Whether tips collected by a hotel from customers and paid to employees could be chargeable as salary in hands of employees?”

The Supreme Court held as under-
(1) Section 15 of the Income-tax Act which talks about salaries provides that there should be a vested right in an employee to claim any salary from an employer. (2) Tips being purely voluntary amounts that may or may not be paid by customers for services rendered to them would not fall under Section 15 as there is no vested right in the employee to claim any amount of tip from his employer. (3) Further, the said section provides that salary paid or allowed must have reference to contract of employment, i.e., an amount paid under contract of employment could only be treated as salary. (4) In the instant case, the amount of tip paid by the employer to the employees had no reference to the contract of employment at all. Tips were received by the employer in a fiduciary capacity as trustee for payments that were received from customers which it disburse to its employees for service rendered to the customer. (5) Hence, tips so disbursed to employees couldn’t be chargeable to tax as salary.