If the accommodation is provided in other cities, the perquisite is to be taken at 15 per cent of the salary. If the accommodation is not owned by the employer, the value of perquisite is to be taken as the lease rent paid or payable by the employer or 20 per cent of the salary, whichever is lesser.

In all cases, the rent, if any, recovered from the employee can be reduced in computing the value of perquisite. It may be noted that the change is by increasing the existing 10 per cent to 20 per cent and 7.5 per cent to 15 per cent.

There will also be no perquisite value, which will be charged in the hands of the employee in case of free travel provided by the employer in respect of a conveyance owned or leased by the employer.

No perquisite value will also be charged in case of fee paid towards membership of a club and also in respect of the expenditure incurred at the club.

The amendment will also keep the expenses incurred by an employer on telephone and mobile phone provided to the employee outside the scope of perquisite.

It may be noted that the Finance Bill, 2005 proposes the introduction of a new fringe benefit of tax in the hands of the employer, which is to be charged at 30 per cent (as increased by the appropriate surcharge and the additional surcharge).

It may also be noted that the proposal to levy fringe benefit tax would apply only where the benefit is not treated as a perquisite and valued in the hands of the employee.

Query

We have set up a new unit in the Cochin Special Economic Zone (SEZ) for the manufacture and trading of electrical panel boards and components.

What will be the income-tax payable in respect of the income generated to the trading activities carried on in such unit?

Will there be a tax liability in respect of the income generated by such unit from manufacturing activities? What is the rate of tax that will be payable on such incomes?

N. Vijayakumar

Reply

Section 10A of the Act allows a deduction in respect of units located in SEZs and which begins to manufacture or produce an article/thing or computer software. This deduction is available for 10 consecutive assessment years beginning from the assessment year in which the undertaking begins to manufacture or produce the article/thing or compute software.

The deduction is available at 100 per cent of profits derived from the undertaking from out of such manufacture or production.

For the assessment year 2005-06, you can, therefore, claim the entire profit derived from the manufacture or production as deductible.

The profit earned through trading activities will be taxable and will suffer the normal rates of tax.

Query

I work in Bangalore and own a flat in Chennai. I am now constructing a house in Chennai. I have taken a housing loan for purchasing the flat and also for constructing the house.

Can I get tax benefits in respect of both the loans, which are taken for the purchase and the construction?

The flat is let out and the house that I am constructing is likely to be completed within four months. As I stay in Bangalore, this house will also have to be let out.

Muthiah

Reply

You can claim the tax benefits in respect of both the houses. As regards the house you are constructing, the interest on housing loan can be claimed as a deduction in full in respect of the year in which the construction is completed.

The interest which relates to the period up to the previous year immediately preceding the previous year in which the construction is completed can be claimed in five equal instalments beginning from the year in which the construction is completed.

Mail your queries to taxtalk@thehindu.co.in or by post to Tax Talk', Business Line, Kasturi Buildings, 859, Anna Salai, Chennai-600002.

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page