Am I Liable To File Two Returns?

My husband who was a retired Central Government employee passed away last year. After his death in Nov-07, I have been getting the pension, being the sole nominee. For purposes of tax calculation and return filing for financial year 2007-08, will I and my late husband be treated as separate assessees. So my question is:

1. Will tax be calculated separately from Apr-07 to Nov-07 for my husband and for me separately from Dec-07 to Mar-08?
2. Or will the entire pension (for financial year 2007-08) be clubbed in my Income for 2007-08 and tax calculated on the same? Vidya Subramanian, Delhi

Yes, you and your deceased husband shall be assessed separately for financial year 2007-08. However , in both case , assessment will be done in your name only- for your income ,you are assessee and in case of your late husband , you shall be assessed under section 159 of the I T Act. as representative assessee . That means you will have to file two returns- one for you and another for your late husband.

In the instant case , pension received by from December 2007 is called family pension which is regarded as income from other sources. So ,

1. compute the pension from December 2007 to March 2008
2. Deduct the standard deduction of 1/3 or Rs 15,000 whichever is less.
3. The net amount of family pension is shown in your Return as income from other sources.

Your late husband's total income has to be computed in following manner

• Pension up to Nov'2007 xxxxxx
• Any other income xxxxxxx
• Gross Total Income xxxxxxxx
• Less
• Any savings for deduction xxxxxxx
• Total Income xxxxxxx

File the return for total income wherein the name of the assessee in the return will be shown as Vidya Subramanian ,Legal Heir of Late XXXXXX.

However, if you find that Gross Total Income is below RS 1,10,000 for Asst Year 2008-09 , you do not have to file the return at all . In case your husband was 65 years or above in the year of demise , you may skip filing return if the Gross Total Income of your late husband does not cross Rs 1,95,000.

Relevant Reading:

How To Comply With Income Tax Formalities In Case Of Deceased Person?

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Is There Any Standard Deduction Available In Case Of Pension Income?

Please advise the IT section no. under which standard deduction from the Pension income is applicable & what is the limit.Also advise, whether the standard deduction is applicable for Pension / Annuity received under LIC Superannuation Scheme. Shirish S. Gandhi ,Anand ,Gujarat

Your question has two limbs -one regarding pension received from employer and other pension or annuity received under LIC Superannuation Scheme.

Pension from employer

Pension received from employer is charged to tax as "salary" . However, the standard deduction previously allowed from salary u/s 16(1) was deleted from the I T Act from FY 2005-06 i.eAsst Yr 2006-07. So , there is no provision of standard deduction from salary income (or pension) from 1/4/2005 onwards.

Pension or Annuity Under LIC policy.

Section 80CCC deals with the pension or annuity scheme of LIC or other insurer. The said sub-section 1 of section 80CCC provides for allowance of deduction of amount deposited in such scheme and sub-section 2 of section 80CCC provides for taxation of amount received either as a result of surrender or pension . The said sub section 2 is as under :

(2) Where any amount standing to the credit of the assessee in a fund, referred to in sub-section (1) in respect of which a deduction has been allowed under sub-section (1), together with the interest or bonus accrued or credited to the assessees account, if any, is received by the assessee or his nominee
(a) on account of the surrender of the annuity plan whether in whole or in part, in any previous year, or
(b) as pension received from the annuity plan,an amount equal to the whole of the amount referred to in clause (a) or clause (b) shall be deemed to be the income of the assessee or his nominee, as the case may be, in that previous year in which such withdrawal is made or, as the case may be, pension is received, and shall accordingly be chargeable to tax as income of that previous year.

In simple words, section 80CCC provides that the pension received from such annuity plan under superannuation scheme of LIC or any other insurer will be taxable. The said amount shall be taxable under the head "income from other sources" being the residual head under the I T Act . There is no express deduction available against such income and the deposit for such scheme was already availed of deduction .

So, there is no deduction available from pension income?

Not exactly. Family pension received by the family members of the deceased employee is charged to tax under section 56 of the I T Act as income from other source. However, under section 57(iia) standard deduction is available to the extent of 33.33 % or RS 15000 whichever is more. The said provision is as under:

(iia) in the case of income in the nature of family pension, a deduction of a sum equal to thirty-three and one-third per cent of such income or fifteen thousand rupees, whichever is less.
Explanation.For the purposes of this clause, family pension means a regular monthly amount payable by the employer to a person belonging to the family of an employee in the event of his death ;

You may like to read these postings also!

Why Is Pension Fund Investment Not A Great Tax Saving Move?

Is Salary or Pension Received By Employees Of United Nations Tax Free?

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Why Is Form 16 Issued For Period March To Faburary?

I am a state government employee serving in Judicial department. Our salary for the month of march will be received during April every year and our officials are going to submit statement of income-tax particulars in February salary bill and submit returns for the financial period from 1.3.2007 to 29.2.2008. Whether the Form No.16 is to be issued for the period 1.3.2007 to 29.2.2008 or 1.4.2007 to 31.3.2008. Kindly clarify Prasad , Chikkmaglur

Income from salary is taxable on due basis or on receipt basis, whichever is earlier. The salary for the month of March in case of government , many public sector employees and even private companies falls due in next month that is April and is also disbursed in the month of April. This is due to accounting of salary expense by respective employers ,typical of government employers .So, the salary for March 2008 , fallen due and received in April 2008 becomes taxable in FY 2008—09 and not 2007-08. Accordingly, for the year FY 2007-08, salary due and received during the year starts from March 2007 to February 2008 . That’s why Form 16 issued by the employer is for period 1.3.2007 to 29.2.2008. If the employer accounts for salary of March making it due in month of March only , even if it is disbursed in the month of April ,the taxable salary will be computed upto March on due basis as it happened earlier than receipt of salary.

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Is Salary or Pension Received By Employees Of United Nations Tax Free?

Yes is the emphatice answer .
The provision given under the United Nations (Privileges And Immunities) Act, 1947 shall override all other laws passed in India , is given in section 2 which is as under :

2. Conferment on United Nations and its representatives and officers
and certain privileges and immunities.
(1) Notwithstanding anything to the country contained in any other law, the provisions set out in the Schedule to this Act of the Convention on the Privileges and Immunities, adopted by the General Assembly of the United Nations on the 13th day of February, 1946, shall have the force of Law in India.

The salary or emoluments received by employees of United Nations organization are not taxable because of the express provision u/s 18(b) of the United Nations (Privileges And Immunities) Act, 1947 . The said section provides as under

SECTION 18.
Officials of the United Nations shall;
(a) ……………..
(b)
Be exempt from taxation on the salaries and emoluments paid of them by the
United Nations;

Is pension received by widow of UN employee tax free?
Yes. This issue was before Calcutta High Court in CIT vs Smt Dipali Goswami [1985] 156 ITR 36 (CAL.)
Facts of the case
Smt. Dipali Goswami, the respondent assessee, is the widow of the late Gurdas Goswami, an I.A.S. Officer of West Bengal Cadre, who had been employed under the United Nations Organisation. During his service with the United Nations Organisation, Shri Goswami had been contributing to the United Nations joint Staff Pension Fund (hereinafter referred to as "the Pension Fund"). On the death of Shri Goswami, the assessee became entitled to a pension from the United Nations Organisation. During the course of the assessment proceeding for the assessment years 1971-72, 1972-73 and 1973-74, it was claimed by the assessee that the pension received by her from the United Nations Organisation was exempt from tax. In support of this claim, the assessee relied on section 18(b) of the United Nations (Privileges and Immunities) Act, 1947. The ITO rejected this claim and held that, in terms of section 17(1)(ii) of the I.T. Act, 1961, the amounts were includible in the assessee's total income inasmuch as the expression "salary" included any annuity or pension and, as such, pension received by the assessee from the Pension Fund was a taxable receipt.

Issue before the court was to decide the question “when the pension is received by the widow of an employee who died in harness, can it be treated as pension exempt from taxation.” Calcutta High Court held
What is received by the widow is in effect the benefit earned by the assessee's husband as an official of the United Nations. That is the reason why such benefit is assessed under the head " Salaries " although there is no contractual relationship of employer and employee between the widow and the United Nations. Even if pension is not a deferred payment of salary, since the pension in this case is deemed to be salary under section 17 and is sought to be taxed under section 15, it must be held to be exempt under the Privileges and Immunities Act, whether received by the official himself or his heir or nominee. It is the nature and character of the receipt and not the character of the recipient that would determine the question whether the receipt is exempt from taxation. What would have been exempt from the hands of the deceased official would necessarily be exempt in the hands of the widow. We are, therefore, of the opinion that the pension paid to the widow of the deceased employee of the UN.
The CBDT Circular No. 293, dated February 10, 1981, in this regard states:

" ............. Apart from salary received by the employees of the United
Nations Organisation or any person covered under the U.N. (Privileges and
Immunities) Act, 1947, pension received by them from the U.N. will also be
exempt from income-tax."

Other case laws .

The Karnataka High Court in the case of CIT v. Ramaiah [1980] 126 ITR 638 considered the effect of section 18(b) of article V of the Schedule to the United Nations (Privileges and Immunities) Act, 1947. There the assessee was a former employee of the United Nations Organisation who had been receiving pension from the United Nations. The question was whether such pension was exempt from taxation. The Karnataka High Court held that the amount of pension received is chargeable to tax under the head "Salary" and the meaning of the expression "salary" given in section 17 automatically applies to any amount of pension received by a person which is chargeable to tax under the head "Salary". The amount of pension received by an employee from the United Nations Organisation falls within the description of the word "salary" and the immunity granted under the said Privileges and Immunities Act becomes applicable. Therefore, the pension received by any former employee from the United Nations was exempt from taxation.

In the case of Addl. CIT v. Garg [1982] 133 ITR 1, the Delhi High Court was considering the assessability of the amount allowable as a child benefit under art VIII(1) of the Regulations of the United Nations Joint Staff Pension Fund. The ITO included the said benefit in the hands of the assessee who was a former employee of the World Health Organisation. It was held in that case that the child benefit is the income of the child and not of the participant. The amount of benefit derived by the child did not fall within the provision of section 17 of the Act.

In the case of CIT v. Dr. Narula [1984] 150 ITR 21, the Delhi High Court held that section 2 of the United Nations (Privileges and Immunities) Act, 1947, read with section 18, clause (b) of article V of the Schedule thereto, inter alia, grants exemption from taxation in respect of salaries and emoluments paid by the United Nations to its officials. Since under section 17 of the I.T. Act, 1961, "salary" has been defined to include pension, the pension received by the officials of the UNO, after retirement, from the United Nations joint Staff Pension Fund will also be exempt from tax. There, the pension was received by the assessee, a former employee of the United Nations.

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What Are The Types Of Pension Exempt From Tax?

Whether pension received by gallantry award holder is taxable as per Income Tax Act. Somya Krishnan ,Kochi
Yes, pension received by gallantry award holder is tax free , but the types of award is also notified. Section 10(18) of the I T Act provides exemption for such gallantry award winner and even to the family pension received by member of the family of gallantry winner. Read the provision below :

18) any income by way of—

(i) pension received
by an individual who has been in the service of the Central Government or State Government and has been awarded “Param Vir Chakra” or “Maha Vir Chakra” or “Vir Chakra” or such other gallantry award as the Central Government may, by notification in the Official Gazette, specify in this behalf;

(ii) family pension received by any member of the family of an individual referred to in sub-clause (i).

The notified Gallantry awards can be found here.

The meaning of family is given in Explanation under clause 5 of section 10 which is as under

For the purposes of this clause, family, in relation to an individual, means
(i) the spouse and children of the individual ; and
(ii) the parents, brothers and sisters of the individual or any of them, wholly or mainly dependent on the individual;

Is there any other tax free pension ?

Yes, clause 19 of section 10 provides that pension received by widow or children of members of armed forces who dies in course of duties are tax free. Read the provision

(19) family pension received by the widow or children or nominated heirs, as the case may be, of a member of the armed forces (including para-military forces) of the Union, where the death of such member has occurred in the course of operational duties, in such circumstances and subject to such conditions, as may be prescribed;

What are the prescribed circumstances?

Inserted by the Income-tax (Fourth Amendment) Rules, 2005,w.e.f. 9-2-2005.

2BBA. (1) For the purposes of clause (19) of section 10, the circumstances of death of a member of the armed forces (including paramilitary forces) of the Union in the course of operational duties shall be the following, namely:—

(i) acts of violence or kidnapping or attacks by terrorists or anti-social elements;

(ii) action against extremists or anti-social elements;

(iii) enemy action in international war;

(iv) action during deployment with a peace keeping mission abroad;

(v) border skirmishes;

(vi) laying or clearance of mines including enemy mines as also mine sweeping operations;

(vii) explosions of mines while laying operationally oriented mine-fields or lifting or negotiation minefields laid by the enemy or own forces in operational areas near international borders or the line of control;

(viii) in the aid of civil power in dealing with natural calamities and rescue operations;

(ix) in the aid of civil power in quelling agitation or riots or revolts by
demonstrators.

(2) It shall be certified by the Head of the Department where the deceased member of the armed forces(including paramilitary forces) last served, or the service headquarters, as the case may be, that the death of such member has occurred in the course of operational duties in circumstances mentioned in sub-rule (1).

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How Is The Stock Appreciation Rights Taxed?

I am working for an IT company head quartered in US, which has given me shares as part ESOP . It was granted to me in Aug 2001 @10$/share and as per company's rule, 25% of granted share was vested in Aug 2002. Pls. remember when share was granted to me or vested, I didn't purchase them. I sold those vested share in Dec. 2007 @17$ and I got the difference of granted price and selling price (i.e.7$/share) * no. of shares and company got the granted price (i.e. 10$)*no of shares. Shares are listed in NASDAQ and sold there and I got the rupees credited into my SB account in India.I would like to know the tax implications and applicability of 54F on amount received. Prakash ,Hyderabad

What you have actually got is the appreciation in the price of shares in which you had right to acquire. Such benefits given by a company to its employee comes under the term "Stock Appreciation Rights" or  SAR in short.

Why SAR ?

The devise of SAR has one benefit more than other types of stock allotment programs of a company.That is it does not require a employee to invest money before reaping the benfit of appreciation in stock prices .

Taxation issues  pertaining to SAR.

There are two  issues related to vesting of Stock Appreciation Rights as far as taxation of benefit due to  SAR is concerned

1. Perquisite in hands of employee
2. FBT payment by company issuing SAR
3. taxation of income out appreciation in share price (difference ) which an employee gets at the time of sale.

Is SAR a taxable perquisite in hands of employee?

Since ESOP has been made taxable under Fringe Benefit Tax , benefit on account of grant of SAR is not taxable in hands of employee.

     However, if the benefit of SAR for any reason is not taxable under FBT, same is taxable under section 17(2) by virtue of clause (vi) of the I T Act.

Taxation of Income On Exercise of Sale of Rights

When an employee exercise rights of SAR and claims the gain i.e  difference between the price of allotment and the price on the date of exercise , such gain is taxable under I T Act .  The first case related to SAR was decided by Income Tax Tribunal , Mumbai in case of Sumit Bhattacharya v. Assistant Commissioner of Income-tax Circle 16(1), Mumbai [2008] 19 SOT 663 (Mum.)(SB) / 113 TTJ 633.

Facts of the case was that The appellant taxpayer was, at the material point of time, i.e., in the previous year ending 31-3-1998, employed as Managing Director of the Procter & Gamble India Limited (hereinafter referred to as 'PGI') which is a part of the group of companies headed by Procter & Gamble Co., Inc., USA (hereinafter referred to as 'PGU'). There is no dispute about the fact that in January 1998, the assessee received a sum of US$ 12,38,084.02, which was equivalent to Rs. 4,79,13,851.58, from PGU on account of redemption of certain stock appreciation rights granted in October 1997. The assessee claimed the receipt as non taxable under I T Act on various ground.Both A.O and CIT(Appeal) did not agree with the assessee and taxed the income as salary.

Then the assessee approached the Tribunal which held the sum received by the assessee as taxable under the head "Salary" even though the SAR was given the Proctor & Gamble ,USA of which the assessee was not an employee.

The tribunal , even otherwise held that if the appreciation receipt is not taxable under the head of "Salary" , the same should be charged to tax under the head "income from other sources". In words of Tribunal

we have come to the conclusion that redemption of stock appreciation right is an employment-related benefit, in the nature of deferred wages contingent upon financial performance of the ultimate employer, i.e., parent company of the company with which the assessee has entered into employment contract, which is a purely monetary benefit. The same is directly of the income nature. As for the reliance placed by the learned counsel for the assessee on the judgments in the cases of N.A. Mody (supra) and T.P. Sidhwa (supra), in support of the proposition that an employment-related benefit cannot be taxed under a head other than 'income from salaries', we find that Hon'ble Supreme Court has duly considered these judgments and yet come to the conclusion that when an employment-related benefit is received from a person other than the employer, the same is taxable under the head 'income from other sources'.

Answer to your specific question

Your gain is to be taxed as income from other source . The same is not a capital gains, no exemption u/s 54F can be claimed.

In fact the , assessee in aforesaid case also raised this issue that at best the appreciation be taxed under capital gains , which the Tribunal turned down on following grounds

As regards assessee's plea that the amount in question can only be taxed under the head 'capital gains' as the receipt is on account of transfer of a capital asset consisting of right to receive stock appreciation rights, we see no substance in the same for the simple reason that, as we have held earlier in this order and as the very preamble of Procter & Gamble (1983) Stock Plan itself states, the amount in question is in the nature of a deferred wages, in the genus of bonus, incentives and like, received as a fruit of employment-related activity which is revenue receipt in nature, and it is only the quantification of this amount which is linked to a capital asset that is value of shares. The taxability is not in respect of the stock appreciation right per se but the amount received as a fruit of employment which is measured by way of a formula envisaged in the stock appreciation rights scheme.

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Can School Fee Treated As Perquisite Be Allowed Deduction U/s 80C ?

I am working in a school & getting 100% rebate on Tuition fee on my 2 children's fee. The amount of rebate is added as a perquisite in my gross salary which increase the amount of TDS on salary but I am not getting the rebate of the same under section 80C why ?. I have been told that since you are not paying the tuition therefore you will not get the rebate under section 80C. Please clear me is this rule is ok.When this amt is added to my salary then why can't I get the rebate on the same. Gayatri Bajpai

Section 17(2)(iii) clearly provides that the value of any benefit or amenity granted or provided free of cost or at concessional rate shall be taken as perquisite. Income Tax

Rule 3(5) states (5)

The value of benefit to the employee resulting from the provision of free or concessional educational facilities for any member of his household shall be determined as the sum equal to the amount of expenditure incurred by the employer in that behalf or where the educational institution is itself maintained and owned by the employer or where free educational facilities for such member of employees household are allowed in any other educational institution by reason of his being in employment of that employer, the value of the perquisite to the employee shall be determined with reference to the cost of such education in a similar institution in or near the locality. Where any amount is paid or recovered from the employee on that account, the value of benefit shall be reduced by the amount so paid or recovered:

Provided that where the educational institution itself is maintained and owned by the employer and free educational facilities are provided to the children of the employee or where such free educational facilities are provided in any institution by reason of his being in employment of that employer, nothing contained in this sub-rule shall apply if the cost of such education or the value of such benefit per child does not exceed Rs. 1,000 p.m.

Therefore, the treatment by your Employer of the free education value as perquisite which is taxable in your hand is justified.

What about deduction u/s 80C?

I feel you should get the deduction of amount u/s 80C for the amount of school fee pad by your employer and treated as perquisite . I support this view because the deduction u/s 80C is a relief to taxpayers. One of the deduction is for expense on tuition fee of children. The law requires that if tax payers spends on tuition fee of his/her children, he/she should be given deduction to that extent subject to limit of Rs 1 lakh.

In your case, the school fee has been treated as perquisite because it is treated as PAID to school by your employer. In other words, you have paid the school fee not directly , but employer paid the fee on your behalf . Therefore the school fee which has been taxed as perquisite in your hand was actually spent by you for your children's studies. So, in my opinion, tuition fee in the total amount of school fee which has been treated as perquisite should be given deduction u/s 80C .

The problem is that the neither the employer nor the assessing officer will agree with your logic. But if you fight at the appellate stage i.e before CIT(A) or Income tax tribunal, I feel a good lawyer can get you relief and all others a precedence .

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Can One Claim Relief For Tax Paid In A Country With Which India Has No DTAA?

I worked in Hongkong for the period of 1/4/2007 to 30/6/2007 on Salary basis in a company. I was transferred in India in July 2007 in a branch of the same company, when i left Hongkong in July 2007 the Income Taxes is paid by me to the Government of Hong Kong. Now i wanted to file my return for the Financial Year 2007-08.Is their is any DTAA's of India with Hong Kong, if yes, how my tax liability will be calculated ?Is there any benefit will be available to me in respect of taxes paid by me in HongKong ? Is Hongkong is Part of China for DTAA's point of view ? In new form of the return thier is no column for showing DTAA's then how I should file my Return ? Arvind Chauhan , Faridabad

Your salary earned in Hongkong is definitely taxable in India and India has no treaty with Hong Kong for avoidance of double taxation. I presume , you were out of country for six months only ,you are resident in India .Still , you should not worry because Indian Income Tax Act has provisions of relief from double taxation of income even in cases where income is earned and taxed in a country with which India has no formal "Double Taxation Avoidance Agreement".

Section 91 of the I T Act provides relief from double taxation in such type of cases which is given as under :

91(1) If any person who is resident in India in any previous year proves that, in respect of his income which accrued or arose during that previous year outside India (and which is not deemed to accrue or arise in India), he has paid in any country with which there is no agreement under section 90 for the relief or avoidance of double taxation, income-tax, by deduction or otherwise, under the law in force in that country, he shall be entitled to the deduction from the Indian income-tax payable by him of a sum calculated on such doubly taxed income at the Indian rate of tax or the rate of tax of the said country, whichever is the lower, or at the Indian rate of tax if both the rates are equal

The general rule of computation of relief is as under:

1. Ascertain doubly taxed income .
2. Ascertain tax by applying Indian rate of tax as well as rate of foreign country separately.
3. Which ever is less , relief is given to that extent.

You can read more about computation of relief u/s 90 or 91 here.

Certain other points need your attention are :

• Doubly taxed income has not been defined ,but as expressed in a court decision by Bombay High Court in CIT v. Bombay Burmah Trading Corpn. Ltd. [2003] 259 ITR 423 , it means only that portion of income on which tax has been paid by the Resident in India which was subjected to taxation abroad also.
• As per explanation given under Section of the I T Act ,the expression "Indian rate of tax" means the rate determined by dividing the amount of Indian income-tax after deduction of any relief due under the provisions of this Act but before deduction of any relief due under this Chapter , by the total income;

Where in Return Can You Claim DTAA?
In income tax returns , there is definitely fields for claiming relief from DTAA.You will find field for claiming relief u/s 90 or 91 after the field for claiming relief u/s 89 of the I T Act. Compute the relief , and claim that much amount in those column.

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Which Losses Can Be Adjusted With Salary Income?

There are five heads of income -salary,house property ,business ,capital gains and other sources. Out of these heads, losses may be incurred in any head except Salary. The question is , whether any loss incurred in any head other than Salary be adjusted with the Salary income?

The provision regarding adjustment of losses incurred in a year within different heads are given in section 71 of the I T Act. It provides that following losses only can be adjusted with salary

1. loss from house property
2. loss from other sources if any.

Business loss was , previously be allowed to be adjusted with Salary income but it was so much mis-utilised that from Assessment year 2005-06, the adjustment was withdrawn by insertion of sub-section 2A under section 71 which reads as under

(2A) Notwithstanding anything contained in sub-section (1) or sub-section (2), where in respect of any assessment year, the net result of the computation under the head Profits and gains of business or profession is a loss and the assessee has income assessable under the head Salaries, the assessee shall not be entitled to have such loss set off against such income.

Similarly ,capital loss -whether short term or long term- is not allowed to be adjusted with other head of income.

(3) Where in respect of any assessment year, the net result of the computation under the head Capital gains is a loss and the assessee has income assessable under any other head of income, the assessee shall not be entitled to have such loss set off against income under the other head.

So , if you have loss under house property income and in other sources, should you tell to your employer so that lower tax on salary is deducted ?

Yes, there is express provision u/s 192(2B) of the I T Act which states that such information should be given to employer in plain paper . The provision is given below

192(2B) Where an assessee who receives any income chargeable under the head Salaries has, in addition, any income chargeable under any other head of income (not being a loss under any such head other than the loss under the head Income from house property) for the same financial year, he may send to the person responsible for making the payment referred to in sub-section (1) the particulars of

• (a) such other income and of any tax deducted thereon under any other provision of this Chapter;
• (b) the loss, if any, under the head Income from house property,

in such form and verified in such manner as may be prescribed, and thereupon the person responsible as aforesaid shall take

• (i) such other income and tax, if any, deducted thereon; and
• (ii) the loss, if any, under the head Income from house property,

also into account for the purposes of making the deduction under sub- section (1) :

Rule 26 B prescribes the rule and form of verification in following words

 26B. (1) The assessee may send to the person responsible for making payment under sub-section (1) of section 192, a statement of any income chargeable under any head of income other than “Salaries” (not being a loss under any such head other than the loss under the head “Income from house property”), received by the assessee for the same financial year, and of any tax deducted on such income.

(2) A verification in the following form shall be annexed to the statement referred to in sub-rule (1),—

Form of verification

I, .......................(name of the assessee), do declare that what is stated above is true to the best of my information and belief.

Therefore, what you should do is to prepare the estimated total income by computing salary income and  any loss from house property and in the end verify it by writing form of verification as stated above.

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What Should You Do In Case Of Receipt Of Salary From Two Employers?

This is a general query from many readers who have received salaries from two or more employers during the year. The I T Act provides clear provision and duties of the , both the employees and employer in those types of cases. Rule 26A of I T Rule takes care of such cases.  The rule is given below

26A. (1) The assessee may furnish to the person responsible for making the payment referred to in sub-section (1) of section 192, the details of the income under the head Salaries due or received by him from the other employer or employers referred to in sub-section (2) of that section and of any tax deducted at source from such income in Form No. 12B

(2) The person responsible for paying any income chargeable under the head Salaries shall furnish to the person to whom such payment is made, a statement giving correct and complete particulars of perquisites or profits in lieu of salary and the value thereof in,

(a) relevant columns provided in Form No. 16, if the amount of salary paid or payable to the employee is not more than one lakh and fifty thousand rupees; or

(b) Form No. 12BA- if the amount of salary paid or payable to the employee is more than one lakh and fifty thousand rupees, which shall accompany the return of income of the employee.

Explanation : Salary for the purposes of this rule shall have the same meaning as given in rule 3.

So, following procedure should be followed

1. Give to your new employer details of income received from previous employer in Form 12 B.

2. The new employer  would take note of Form 12B  to arrive at estimated income  and then deduct the tax at source  .

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Is Fee To Lawyers or CA For Income Tax Case Allowable Expenditure?

I have paid Rs15000/- as legal fee to my Income Tax Lawyer in Jan 08 for representing my Scrutiny case of A/Y 2005-06, Can I Claim deduction of this amount from my salary income of A/Y 2008-09.Harish Chander Kochhar, Beas District Amritsar

The simple rule for allowance of an expense under Income Tax Law is that all expense incurred for earning taxable income should be allowed. You are earning salary income , and no part of your salary earning was dependent on the expense you incurred on scrutiny assessment. Moreover there is no provision for any kind of expense allowance against salary. So, Rs 15,000 is not claimable expense.

What would have been the position in case of business income?

There are contradictory decision on the allowance of fees to chartered accountants or lawyers for income tax proceedings in case of earning of business income.

First the favourable decision for assessee

In Commissioner Of Income Tax, (Central), New Delhi. vs Dalmia Dadri Cement Limited. 125 ITR 510 , Delhi High Court

We next advert to question No. 2 relating to the amount of Rs. 8,679 claimed by the assessee as fee paid to lawyers for preparation and pursuing of income tax appeals. The assessee has in this regard placed reliance upon the observations of the Supreme Court in the case of CIT v. Birla Cotton Spinning & Weaving Mills Ltd. [1971] 82 ITR 166 (SC), to the effect that the earning of profit and payment of taxes are not isolated and independent activities of a business. These are continuous and take place from year to year during the whole period for which the business continues. If the assessee takes any step for reducing its liability to tax which results in more funds being left for the purpose of carrying on of business there is always the possibility of higher profit. Similarly, in Sree Meenakshi Mills Ltd. v. CIT [1967] 63 ITR 207, the Supreme Court observed that in order that an expenditure may be admissible as a deduction, it is not necessary that the primary motive in incurring it must be directly to earn income thereby.

The Allahabad High Court too has in the case of Modi Sugar Mills Ltd. v. CIT [1973] 90 ITR 201 allowed expenditure reasonably and honestly incurred in connection with legal proceedings taken by an assessee by way of a writ for escaping tax liability consequent upon the discovery of concealed income. The Delhi High Court too in a Division Bench case, D.S. Bist and Sons v. CIT [1972] 85 ITR 254, has held that the expenses incurred by an assessee in payment of professional fees to chartered accountants in connection with representation to the Central Board of Revenue and other legal proceedings in appeals and in connection with settlement of old assessments with the Directorate of Inspection were allowable as business expenditure under s. 10(2)(xv) of the Indian I.T. Act, 1922. In view of this chain of decisions, we are unable to interfere with the order of the Tribunal holding that the sum of Rs. 8,679 claimed by the assessee as legal and court expenses for preparation and pursuing of income tax appeals was permissible. Question No. 2 is answered in favour of the assessee.

Against the assessee

Rajasthan high court has decided in favour of the assessee in case of Associated Stone Industries v. Commissioner of Income-tax [2003] 261 ITR 766 (Raj) saying

The amount, which has been claimed for deduction under section 80VV only part thereof has been disallowed. The Tribunal was right in its approach in disallowing the payment of fees to chartered accountants for filing the returns and preparing the accounts after the close of the year and for litigation to contest the tax imposed. We do not find that the payment of fees incurred for such type of jobs was for the business of the assessee. It relates to the income and that income has already been earned in the previous year, to contest the tax imposed cannot be said to be for the purpose of business, particularly when a negligible part of the amount of fees has been disallowed.

Take your decision!

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Why Should I Pay Tax On 13 Months' Salary When I Earned For 12 Months Only?

I am working in SSSIHMS Prasanthigram.Today I received a notice from our Director asking for my income tax deduction for 13 months from March2007 to March2008 since they are going to pay me March2008 salary on 31.03.2008.which they were not practicing in previous years.Only because they credit my pay to my account 24 hours ahead of completion of the financial year I have to pay excess income tax of one month's salary though actually I earn for 12 months ,receive for 12 months and should pay my tax for 12 months also.Please advise me what steps should I take to avert extra month's tax for which I am not due. Name Withheld, Prasanthigram

The salary is taxable either on due basis or receipt basis. This is clear from section 15 of the I T Act which is as under

15. The following income shall be chargeable to income-tax under the head Salaries

(a) any salary due from an employer or a former employer to an assessee in the previous year, whether paid or not;

(b) any salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer though not due or before it became due to him;.....

Generally,employers prepares salary bills for the month of March in April, therefore the salary for March is not taken for computation of total income as it is neither due nor paid during that financial year. In your case also, the salary for March 2007 was not taken into account in Fy 2006-07 ,as it became due and paid in April 2007 ,thus, it has to be taken for total income computation for FY 2007-08.

The exceptional step taken by your organisation, is that the salary will be now become due , as you have stated , from April to March.

So, this financial year, i.e 2007-08 , salary for March 2008 will become due in the books of your employer in March 2008 only. Whether they pay you that salary in March 2008 or not, your employer is liable to deduct the tax on the total salary paid or due to you. Since it is due on March 2008, the salary taxable for FY 2007-08 will be 13 months.

The logic that you earned for 12 months is not correct as far as Income Tax Act is concerned. On account of change in payment schedule by your organisation, for the Fy 2007-08, total earning is of 13 months as far as salary is concerned.

There is no special deduction for such a problem, which will not be from next year. What if the next year, salary for March 2009 again become due in April 2009. You will be paying tax on salary for 11 months only!

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Why Is Company Deducting Tax Even Though Salary Payment Is Below Exemption Limit?

TDS under sec 194 J @ 10% is deducted from the salary even though it is below the taxable slab (135000 for women). would that money be refunded when the person files IT Returns at the end of the FY. Her gross anual salary is Rs. 120000. and what actually is this sec 194J. Vivek Agarwal , Bangloare

Dear reader, you should know that the company is not treating you an employee but actually as a professional. This is the fashion these days to protect themselves from many labour laws. The youngsters do not understand this when they are appointed . youngsters think they are employees of the company

Income tax law has provision u/s 194 J which provides that if professional or technical fee is paid in excess of Rs 20000 in a year, TDS @ 10 % plus surcharge and education cess has to be made by the payer.

The lady in question may not have income more than Rs 1,35,000 , but the moment she is paid by her employer who actually has employed her not on salary pay roll but as a professional, TDS is required to be deducted by the employer if the aggregate payment in a year is Rs 20000 or more.

What Are Options

There are two options for solving such problems....

1. An application in form 13 should be made before the A.O having jurisdiction on you. Once certificate of no deduction is granted by A.O , furnish it to the employer , then no TDS shall be made .
2. File income tax return and claim refund.

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Is Compensation Awarded By Court Taxable?

Like to know if compensation amount decreed by the court on account of very delayed release of benefits by employer attract income tax. It is only an amount not exchanged against any value. Also, what must be deducted as TDS? The facts of the case was that the person was paid his pension with all arrears by his employer after a long delay of some 7 years. After receiving his pension along with arrears,he filed a civil suit for compensating him for the unjust enrichment received by his employer, a public sector undertaking during the delay period of 7 years. His suit is decreed in toto and he is also awarded interest from date of filing the suit till date of payment. ( It may be noted that the amount he is to receive is not related to pension/arrears. Those amounts he already has received. Now the income in question is a compensation for unjust enrichment received by the employer during the long and unjustified delay).Now the question is whether this amount decreed by court is taxable.

If it is not taxable, the employer need not deduct TDS while making the payment. Can he prevent the employer from making such deduction to save the hassle of claiming refund?Dr. Ashok Wadikar ,Pune

Compensation awarded by the Court is taxable ,but not all compensation awarded by a court is taxable . The Punjab & Haryana Court was seized of a case where in it ultimately confirmed the decision of Tribunal that the interest awarded by the High Court to an assessee is not taxable . The said decision of Punjab High Court in case of under I T Act. The facts and circumstances and the nature of Commissioner of Income-tax v. B. Rai [2003] 264 ITR 617 (P&H) is given below :

'Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that interest amounting to Rs. 1,17,975 received on arrears of salary after grant of higher pay scale by the Punjab and Haryana High Court is not taxable ?'

The question of law as reproduced above emanates from the facts that the assessee, an individual, who was at the relevant time District and Sessions Judge, for the assessment year under consideration, had claimed higher pay scale than what was being allowed to him. The matter pertaining to higher pay scale was meted out by this court in civil writ petition, wherein the claim of the assessee for higher pay scale was allowed. This court while passing order for grant of higher pay scale also ordered payment of interest at the rate of 12 per cent. per annum from the date of accrual of amount till the date of actual payment. The amount of interest thus payable worked out to Rs. 1,17,975, which was claimed by the assessee as interest not in the nature of income.

The Deputy Commissioner of Income-tax, Range-I, Jalandhar, on a reference made by the assessee under section 144A of the Income-tax Act, 1961 (in short 'the Act'), did not accept the assessee's contention and observed that the interest allowed to the assessee by virtue of section 34 of the Code of Civil Procedure was statutory at fixed rate whereas section 34 of the Code of Civil Procedure, permits under discretionary power to allow interest as the authority deems fit with the condition that it should not exceed more than six per cent. per annum but in the case of the assessee, interest at the rate of 12 per cent. per annum, was allowed considering the prevalent rate of interest. Accordingly, the Assessing Officer assessed the amount of Rs. 1,17,975 as the income of the assessee. This order of the assessing authority was challenged by the assessee in an appeal before the Commissioner of Income-tax (Appeals) but the order passed by the Assessing Officer was upheld