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Wednesday, December 23, 2009

New income-tax rules on perks to replace FBT notified

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The rules “shall be deemed to have come into force on April 1, 2009”

Salaried-class may have to cough up more tax
Holiday/vacation travelling under new norms

The Central Board of Direct Taxes (CBDT) has notified the new rules for valuation of perquisites such as accommodation, conveyance and other benefits provided by employers to the salaried staff for calculation of tax liability.

According to the notification dated December 18, the new rules, called the ‘Income-tax (13th Amendment) Rules, 2009’, “shall be deemed to have come into force on April 1, 2009,” to replace the already abolished Fringe Benefit Tax (FBT).

Hitherto, the tax on perquisites extended to salaried employees was paid by the employer in the form of the FBT. However, with Finance Minister Pranab Mukherjee scrapping the levy in the Budget 2009-10 owing to the persistent demand of corporates, perks such as residential accommodation, conveyance facility and other benefits provided to employees would henceforth be added to their individual salaries for computation of personal income tax. On final count, a large section of the corporate salaried class may have to cough up more as personal income tax each year. According to the CBDT notification, the perks to be included in the taxable salary of employees — subject to specific clauses and conditions pertaining to valuation norms — include residential accommodation given by the employer, expenses incurred on motor car for official or personal use, salaries of services such as driver, gardener, sweeper, watchman, personal attendant (if paid by the employer) and concessional education provided to their children.

Apart from conventional perks such as accommodation and conveyance, other benefits such as holiday/vacation travelling, free food and non-alcoholic beverages provided by the employer, gift or vouchers received by the employee on ceremonial occasions, reimbursements for club membership and tour allowances would also come under the ambit of the new income tax valuation norms.

Till last fiscal, although the perquisites were added to the salary for computation of income-tax, the tax leviable on them — if specified as FBT — were paid by the employer and not the employee who received the benefits.

With regard to government employees, the new rules appear to be the same as were applicable before, barring the staff on deputation who may have to pay a comparatively higher amount as income-tax.
Source:The Hindu

Pay for perks in last three months

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As you return from your New Year vacation, employers will have a surprise for you. Your salary cheque will look slimmer after the deductions on all your perks for the entire year -- company car, fuel allowance, driver, accommodation, furnishings, concessional fees for kids, company funded travel and the like.

The government had announced in Budget 2009-10 that Fringe Benefit Tax (FBT) on perks provided by employers would be abolished but its impact is going to kick in from next month with the Central Board of Direct Taxes issuing a notification on Friday which transfers the tax burden on the employee.

For instance, while a car of upto 1.6 litre engine capacity in the pre-FBT regime would call for Rs 1,200 tax outgo at the hands of an employee, the same is now fixed at Rs 1,800. Anything above this engine capacity would amount to a monthly tax outgo of Rs 2,400. Add Rs 900 as tax on your monthly salary bill if the company has also provided you a chauffeur, said Kuldip Kumar, an executive director with PricewaterhouseCooper.

In case the employer has provided a car to an employee for his personal use, the entire expenses borne by the company on the running of the car and its maintenance would be liable for tax at the hands of the employee.

Accommodation, car, salary of your gardener, assistant at home, watchman, your electricity, water, club, credit card and holiday bills will all be taxed on actual expenses and as per the limit specified in the new notification.

In the FBT regime introduced by then finance minister P Chidambaram in 2005, perks were taxed to employers while fringe benefits enjoyed by employees were tax free.

Now, your club membership will be taxed to you unless it is specified in your work contract that it is for official purpose.

In fact, the CBDT notification should have come just after the Budget to make it easy for employees to spread his tax outflow over the entire fiscal. However, it has come at the fag end of the year when in the remaining three months entire tax will be calculated and deducted at source resulting in lower pay cheque for employees.
Source:The Times of India

Tax deduction HRA received by employee

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Employees generally receive a house rent allowance (HRA) from their employers. This is a part of the salary package, in accordance with the terms and conditions of employment.

HRA is given to meet the cost of a rented house taken by the employee for his stay.

The Income Tax Act allows for deduction in respect of the HRA paid to employees. The exemption on HRA is covered under Section 10(13A) of the Income Tax Act and Rule 2A of the Income Tax Rules. It is to be noted that the entire HRA is not deductible.

HRA is an allowance and is subject to income tax. An employee can claim exemption on his HRA under the Income Tax Act if he stays in a rented house and is in receipt of HRA from his employer.

In order to claim the deduction, an employee must actually pay rent for the house which he occupies . The rented premises must not be owned by him. In case one stays in an own house, nothing is deductible and the entire amount of HRA received is subject to tax.

As long as the rented house is not owned by the assessee, the exemption of HRA will be available up to the limits specified in the relevant rules.

According to the Income Tax Act, the amount of HRA exempt is the least of: The actual amount of allowance received by the assessee in the relevant period during which the rented accommodation is occupied by him.

The amount by which the rent expenditure actually incurred by the assessee exceeds one-tenth of the amount of salary due to the assessee in the relevant period 40 percent of the salary due to the assessee in the relevant period.

To compute the amount salary means basic salary. It also includes dearness allowance if the terms of employment provide for it, and commission based on a fixed percentage of turnover achieved by the employee. The deduction will be available only for the period during which the rented house is occupied by the employee and not for any period after that.

Here is an illustration for the year 2009-10 .

Assume an assessee gets a salary of Rs 5 lakhs as basic salary and Rs 2.5 lakhs as HRA. He pays an actual rent of Rs 1.5 lakhs. In such a case, the amount of HRA exempt would be calculated as:

Actual HRA received - Rs 2.5 lakhs Excess of rent paid over 10 percent of salary i.e., Rs 1.5 lakhs less Rs 50,000 (10 percent of salary) - Rs 1 lakh 40 percent of salary (40 percent of Rs 5 lakhs) - Rs 2 lakhs As out of these Rs 1 lakh is the least, it will be allowable as a deduction from salary for the year. The balance HRA of Rs 1.5 lakhs will be subject to tax.

The deduction is allowable only for the period during which the rented accommodation is taken by the employee.
Source:The Economic Times



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