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T. Banusekar

I AM a software engineer working for a company in India. I am presently on deputation in Hong Kong. The Indian company pays me a salary in India, which is directly credited to my bank account in India.

I also get a living allowance for my stay overseas. My employer company wants me to give a declaration on stamp paper that I have spent the entire living allowance received for my stay overseas failing, which they say that tax would be deducted at source on my living allowance. Is this view of my employer a correct one?

Kumar

Reply

Section 10(14)(i) read with Rule 2BB provides that any allowance, whether granted on tour or for the period of journey in connection with the transfer to meet the ordinary daily charges incurred by an employee on account of absence from his normal place of duty will be exempt to the extent to which "such sums are actually spent". While this is so, the onus of proving that the sum has actually been spent would lie on the person who seeks to claim the exemption under this Section.

This would apparently mean that a mere declaration will not suffice for the claim of exemption. It is definitely appreciated that it may not be possible to produce bills and vouchers for every kind of expenditure that is incurred. In such a case the test of reasonableness of expenditure will have to be applied to see whether the amount has actually been spent.

It may also be stated as a matter of abundant caution that if the employee at the end of his service abroad brings money into India which will represent the savings out of the living allowance it can definitely be said that the living allowance to the extent of such savings has not been spent and will, therefore, not be eligible for the exemption.

Similarly, if the bank accounts of the employees maintained abroad is examined and if it is found that some part of the allowance has not been spent, the same will not qualify for the exemption. It may also be noted that if the employee is a resident but not ordinarily resident or a non-resident, the said allowance will not be taxable if it is received abroad as it will be for services rendered abroad and will, therefore, be deemed to accrue or arise outside India and hence will be non taxable in India.

As mentioned earlier however, the income will be taxable in India to the extent it is not spent if the employee is resident and ordinarily resident in India.

If the allowance is also taxable in Hong Kong, relief would be available on the doubly taxed income in India under Section 91 if the person is a resident of India. The relief that would be available would be the lower of the tax on such income in Hong Kong or on such income in India.

Query

My company has provided me with a car (Maruti 800). I maintain a log book in respect of my travel using the car. This car is used only for travel from residence to office and back and for other official purposes. Will there be a perquisite value on the car provided to me whereby my employer will have to deduct tax on such perquisite value?

Vivek Vyas

Reply

If a motor car is provided by an employer to an employee and if the cubic capacity of the engine of the car does not exceed 1.6 litres the value of perquisite if the car is used partly for private and partly for official purposes will be Rs 1,200 per month (plus Rs 600 per month if a chauffer is also provided to drive the car). If the running and maintenance expenses are met by the employee and not by the employer the perquisite value will be Rs 400 per month (plus Rs 600 per month if a chauffer is also provided). If the car is used only for official purposes no perquisite value will be added to the salary of the employee.

Use of car for the purpose of commuting from place of residence to work and back is not regarded as use of the car for private or personal purposes. Therefore, in the reader's case there is no personal use of the car and hence no perquisite value needs to be added to the salary of the reader.

It may be noted that if the employer or the employee claims that the car is used wholly in performance of official duties, the following conditions may be fulfilled:

The employer has maintained complete details of journey undertaken for official purpose which may include date of journey, destination, mileage and the amount of expenditure incurred thereon and

The employer gives a certificate that the expenditure was incurred wholly and exclusively for the official duties (Notification No.184 / 2002 dated 23.07.2002).

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