Jun 182015
 

Valuation of perquisite in the assessment of the employees for enjoyment of moveable assets of employer

We all know that perquisites are the casual emolument or benefit attached to an office or position in addition to salary or wages. Generally employers equip their employees with assets which help them in efficient working – like laptop, computer, car, other electronic items etc. Income tax act assumes these enjoyments as income of employees and taxed under the head – “Income under the head salary”. Here an attempt is made to understand the extent of taxation involved when employee uses these assets.

Perquisite in respect of use of movable assets-

Mode of valuation Perquisite in respect of use of movable assets
Computer/laptop Any other assets
Owned by the employer Taken on hire by employer
Step 1- Find out cost to the employer

 

Step 2- Less Amount recovered from the employee

 

Taxable value of the perquisite (Step 1- Step 2)

Nil

 

 

Nil

 

 

 

Nil

10% per annum of actual cost

 

Recovery from the employee

 

 

Balancing amount (if it is positive)

Amount of rent paid or payable

 

Recovery from the employee

 

 

Balancing amount (if it is positive).

In the above cases purpose for which assets are provided by employer is irrelevant.

Case study

Find out the taxable value of the perquisite in the following cases for the assessment year 2016-17 –

Case 1: Mr. X is given a laptop by the employer-company for using it for office and private purposes (ownership is not transferred). Cost of the laptop to the employer is Rs.96,000/-.

Solution:

Generally laptops are issued to employee for use it for their official duties when they are out of office or at remote areas. Hence these are not treated as any additional benefits accruing to employee.

Further, as discussed in above rules, since Mr. X is provided with a laptop by the employer,henceit is not chargeable to tax.

Case 2: On June 15,2015, the company gives its music system to Mr. Y for domestic use. Ownership is not transferred. Cost of music system (in 2001) to the employer is Rs.15,000/-

Solution:

Mr. Y is provided a music system by the employer. The taxable value of the perquisites is determined @10% per annum of cost. Accordingly Rs.1192/-(being Rs.15,000*10/100*290 days/365 days in a year) is chargeable to tax each year commencing from AY 2016-17 till the assets kept in his possession. Further if any amount is recovered by employer from employee, same will be deducted in arriving at taxable value.

Jun 172015
 

Interest free loan from employer and loans at concessional rates

In some cases companies extends loan facility to its employee for various purposes – like education, medical treatment, marriage, etc. These loans are generally free and recovered from salary of employees in the form of deduction of equal amount over a period of time, which vary from 6month to 7 years as per policy of company. Due to such arrangement employees are benefited in terms of interest free loan which they otherwise needs to pay if the same fund arrangement is done from some alternative arrangement and income tax act imposes tax on such notional income by treating such loan arrangement as perquisite. Today we will understand the method of calculating such notional interest income.

Valuation of perquisite in respect of interest-free loan or loan at concessional rate of interest-

If a loan is given by the employer to the employee, it is a perquisite chargeable to tax. It is taxable on the following basis –

Step 1 Find out the “maximum outstanding monthly balance (i.e., what is the aggregate outstanding balance for each loan as the last day of each month)
Step 2 Find out rate of interest charge by the State bank of India (SBI) as on the first day of the relevant previous year in respect of loan for the same purpose advanced by it
Step 3 Calculate interest for each month of the previous year in respect of the outstanding amount mentioned in Step 1 at the rate of interest given in Step 2.
Step 4 From the total interest calculated for the entire previous year under Step 3, deduct interest actually recovered, if any, from the employee during the previous year.
Step 5 The balancing amount [i.e., Step 3 minus Step 4] is taxable value of perquisite.

When Interest on Loan Is Not Chargeable To Tax -

In the following cases, the perquisite is not chargeable to tax –

Case 1 If a loan is made available for medical treatment in respect of diseases specific in rule 3A.The exemption is, however, not applicable to so much of the loan as has been reimbursed to the employee under any medical insurance scheme.
Case 2 Where the amount of original loan (or loans) does not exceed in the aggregate Rs. 20,000/-.

Example 1 –

Mr. X takes a loan of Rs. 2,00,000/- from his employer on May 1, 2015 for medical treatment of Mrs. X (medical treatment is specified in rule 3A). Hospital bill is Rs. 2,00,000/-. The perquisite is not chargeable to tax.

Suppose in this case insurance claim of Rs. 50,000/- is received on October 15, 2015 which is retained by Mr. X. In such a situation, interest on Rs. 50,000 will be chargeable in hands of Mr. X with effect from October 15, 2103.

Example 2-

Mr. X takes loan of Rs. 15,000/- from his employer on May 28, 2014 (assuming no other loan is taken so far). As the amount of loan does not exceed Rs.20,000/-, nothing is chargeable to tax.

Suppose in this case another loan of Rs.5,500/- is taken from the employer on May 17, 2015. Now the aggregate amount of loan exceeds Rs. 20,000/-. Consequently, interest on Rs. 20,500/- (i.e., Rs.15,000/- + Rs.5,500/-) will be chargeable to tax with effect from May 17, 2015.

Example 3-

Mr. X takes a loan of Rs. 1,70,000/- from his employer on October 1, 2003. It is repayable by way of quarterly installments. On April 1, 2015, the outstanding amount is Rs. 20,000/-. The perquisite is not exempt from tax, as the amount of original loan is more than Rs.20,000.

The following points should be noted –

  • Interest will be calculated according to the method given above. No other method (e.g., cost of capital / fund to employer) shall be taken into consideration.
  • If a closely- held company given a loan to an employee who holds at least 10% voting power, such loan is deemed as dividend under section 2(22)(e), if a few conditions are satisfied . Even in such a case, the perquisite value of interest-free loan is chargeable to tax.
  • National interest on interest-free security deposit given by the employer (for a flat belonging to the employee taken on lease), cannot be treated as perquisite.

Hope, the above blog will help you to understand the nature timing and extent of taxing notional interest on loan extended by employer free of cost. In our upcoming blogs we will elaborate more on underling principles with the help of practical examples.

Jun 152015
 

Computation of TDS in case employee is working under two employer in same year

Cases where an employee can work under two employer in a single financial year

Normally an employee is employed under employer during whole financial year and thus no problem arises in deduction of TDS from salary. In this case all information relating to income of employee is readily available with employer and computation task is easy to handle. However, complexity arise where employee work under two employer. This problem may arise in the following situations:

  1. Where employee changes his job in the middle of year
  2. Where employee is engaged in part time jobs or week end assignment
  3. Where employee work under two employee simultaneously

Here, an attempt is made to explain the duties and responsibilities of employee and employer. Further this blog will explain you how to handle this situation.

More Than One Employer

Where an employee has more than one employer,he is required to furnish in Form No. 12B to one of the employers (as selected by the employee having regards to the circumstances of the case)the detail of salary due/received by him from one other employers.

Only after submission of information in Form No.12B, it becomes the obligation of the employer (to whom Form No.12B is submitted) to deduct tax at source after considering the information submitted by the employee.

For instance, if information is submitted in the month of October,only from October onwards, tax shall be deducted at the average rate determined after considering the details submitted in the Form No. 12B.

Case 1:

During the previous year 2015-16, Mr X is employed simultaneously by A Ltd.(salary: Rs.30,000)and B Ltd. (salary:Rs.42,000) on part-time basis. Mr X may select any of the two companies for deducting tax at source on aggregate salary.

Suppose, Mr X selects B. Ltd.,then tax will be deducted as follows:

Tax deduction by A Ltd on salary paid by it.
Rs.
Tax salary by A Ltd. (Rs.30,000*12) 3,60,000
Tax on taxable salary to be deducted at source by A Ltd. 9,270

The above information pertaining to A Ltd will be submitted by Mr X to B Ltd in Form No.12B Ltd will deduct tax on the aggregate salary as follows:

Tax deduction by
B Ltd.
Rs.
Taxable salary (Rs.30,000*12+Rs.42,000*12) 8,64,000
Tax on taxable salary 1,00,734
Less: Tax deducted by A Ltd. 9,200
Tax to be deducted by B Ltd. 91,464

Case 2:

Mr Y is employed by C Ltd. Up to June 30,2015(salary being Rs.80,000 per month). On July 1,2015,he joins D Ltd. (salary being Rs. 95,000 per month). Tax will be deducted as source as follows:

Taxation deduction by
C Ltd on salary paid by it Rs.
Taxable salary by C Ltd. (80,000*3) 2,40,000
Tax on salary deduction of source by C Ltd.(Tax will be calculated on monthly basis at annual average tax rate which is calculated as below:

Salary per month Rs. 80,000
Annual salary Rs. 960,000
Tax on annaul salary Rs. 120,510
Annual tax rate 13%
Salary received till June 2015 Rs. 240,000
Tax on above salary Rs. 30,130
30,130

The above information pertaining to C Ltd will be submitted by Mr Y to D Ltd. in Form No.12B. D Ltd. will deduct tax on the aggregate salary as follows(Mr Y should not select the old employer for deducting tax in respect of aggregate salary).

Tax deduction by B Ltd .
Rs.
Taxable salary (Rs. 80,000*3+ Rs.95,000*9) 10,95,000
Tax on taxable salary 1,58,105
Less:Tax deducted by C Ltd. 30,130
Tax to be deducted by B Ltd. 1,27,980
Jun 112015
 
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Jun 092015
 

No more sending ITR-V by post after income tax filing – Verification with Aadhar card introduced

CBDT vide its circular no 41/2015 dated 15.04.2015 recently announced that taxpayers who filed their income tax returns online will no longer have to send the paper acknowledgement by post to CPC Bangalore, if they have aadhar card which can be used for verification purpose.

Instead of manual verification, a new Electronic Verification Code has been introduced to verify the e-returns. For that one will have to mention their aadhar card number in ITR form, and tax-payer will get an OTP number on their mobile for verification, which needs to be completed on the website of tax filing. Below is a snapshot of the new ITR form where aadhar card number is asked in case you have it.

Issues with the legacy system

Earlier the process was like this. Once you e-filed your tax returns, you then had to send the acknowledgement copy within 120 days to CPC Bangalore. Only those who had signatures could do verification online, but it was very rare, hence millions of tax-payers had to take the pain of manually sending the form. However, the old system was not robust and a big number of people used to get messages that their acknowledgement has not reached tax department and other manual errors used to happen.

New system

With the introduction of this new system, things will be simplified and even faster. Now the process will be as simple as filing the tax returns online and they will get a one time password for verification purpose on the registered mobile number, which has to be used for verification on the website of tax department. That would complete the process of verification.

But I don’t have Aadhar Card?

Don’t worry. You can always send the physical documents to CPC, Bangalore like you did earlier. You can do that even if you have aadhar card. This new system of verification is just an alternative way for those who have aadhar card.

Jun 032015
 

Income Tax Return Forms ITR 1, 2 and 4S Simplified for Convenience of the Tax Payers

Simplified Income Tax Return Forms

A New Form ITR 2A is proposed which can be Filed by an Individual or HUF who does not have Capital Gains, Income from Business/Profession or Foreign Asset/Foreign Income. 

In Form ITR 2 and the New Form ITR 2A, the Main Form will not Contain more than 3 Pages, and other Information will be Captured in the Schedules which will be Required to be filled only if applicable.

As the software for these forms is under preparation, they are likely to be available for e-filing by 3rd week of June 2015. Accordingly, the time limit for filing these returns is also proposed to be extended up to 31st August, 2015 (31.08.2015). A separate notification will be issued in this regard.

Only Passport Number, if available, would be required to be given in forms ITR-2 and ITR-2A. Details of Foreign Trips or Expenditure thereon are not required to be Furnished

Having considered the responses received from various stakeholders, ITR forms are proposed to be simplified in the following manner for the convenience of the taxpayers:-

1)         Individuals having exempt income without any ceiling (other than agricultural income exceeding Rs. 5,000) can now file Form ITR 1 (SAHAJ). Similar simplification is also proposed for individuals/HUF in respect of Form ITR 4S (SUGAM).

2)         At present individuals/HUFs having income from more than one house property and capital gains are required to file Form ITR-2. It is, however, noticed that majority of individuals/HUFs who file Form ITR-2 do not have capital gains. With a view to provide for a simplified form for these individuals/HUFs, a new Form ITR 2A is proposed which can be filed by an individual or HUF who does not have capital gains, income from business/profession or foreign asset/foreign income.

3)        In lieu of foreign travel details, it is now proposed that only Passport Number, if available, would be required to be given in Forms ITR-2 and ITR-2A. Details of foreign trips or expenditure thereon are not required to be furnished.

4)       As regards bank account details in all these forms, only the IFS code, account number of all the current/savings account which were held at any time during the previous year will be required to be filled-up. The balance in accounts will not be required to be furnished. Details of dormant accounts which are not operational during the last three years are not required to be furnished.

5)       An individual who is not an Indian citizen and is in India on a business, employment or student visa (expatriate), would not mandatory be required to report the foreign assets acquired by him during the previous years in which he was non-resident if no income is derived from such assets during the relevant previous year.

6)         As a measure of simplification, it has been endeavored to ensure that in Form ITR 2 and the new Form ITR 2A, the main form will not contain more than 3 pages, and other information will be captured in the Schedules which will be required to be filled only if applicable.