The Hindu Business Line : De-taxing the taxi ride

I work in a software company in Chennai. I receive leave travel assistance from my employer. For the purpose of taking into account the exemption under Section 10(5) in respect of LTA, my employer insists on proof of travel, which should be train tickets, economy air tickets or tickets of any other form of public transport. Bills from cab operators are not accepted for giving staff the benefit of Section 10(5) in computing the tax to be deducted at source. Is my employer right in doing so? M. Swaminathan

The tax exemption under Section 10(5) is available subject to satisfying the conditions in the Section and to the limits specified therein. The limits in the Section are only the maximum limits and bear a reference to a public transport, rail transport or air economy fare by the national carrier. This does not mean that the travel will have to be performed only by these modes. The travel can be performed by any mode but the exemption will be restricted to the limits in the Section. Your employer is, therefore, not right in not allowing you the benefit of exemption under Section 10(5) on the basis that you have not provided tickets of a public transport, air carrier or train. In any case, if your employer were to insist on not taking the bills produced by you into account, your only recourse would be to file a return claiming the exemption and a refund.

I purchased a flat in Bangalore on November 20, 2004. For this purpose I took a housing loan from the bank. On March 31, 2006. I sold my house property in Maharashtra. If I use the proceeds to repay the housing loan taken for the purchase of the flat in Bangalore, will I be eligible for any exemption in respect of the capital gains arising from the sale of the house property in Maharashtra? Ashutosh

You will not be eligible for exemption in respect of the capital gains arising from the sale of the house property at Maharashtra. No exemption is provided for repayment of a housing loan taken for purchase of the house. An exemption is only available under Section 54 in respect of the capital gains from transfer of a house property, on purchase or construction of a house subject to satisfying the conditions in that section.

My total income for the assessment year 2006-07 is Rs 5,50,000. Will I be able to claim deduction under Section 80C in respect of specified savings such as NSC, PPF etc?

V. Palaniappan

You will be able to claim the deduction under Section 80C. You may note that the erstwhile Section 88, which permitted rebate, prohibited a claim for the rebate if the gross total income exceeded Rs 5 lakh. A similar prohibition is not contained in Section 80C. Therefore, there should be no difficulty in claiming the deduction.

I purchased a flat in January 2005 and paid the stamp duty and registration fee. I, however, did not claim any rebate in respect of the stamp duty and registration charges in that year. I have been claiming tax benefits available in respect of repayment of the housing loan taken from the bank. Will it now be possible for me to get the tax benefits in respect of the stamp duty and registration charges paid in the financial year 2004-05? Can I claim the tax benefit in the financial year 2006-07? Suraj Pratap Singh

The tax benefit in respect of stamp duty and registration charges could have been claimed under Section 88 in the financial year 2004-05 which was the year in which the said charges were incurred. The tax benefit cannot be claimed in the current year, that is, in the financial year 2006-07 under Section 80C merely because of your failure to claim it in the earlier year. You may note that Section 80C also places a restriction for claiming the deduction by providing that it will be available in the year in which the payment is made.

I bought some shares in 1999. These shares were de-listed from the market subsequently. After five years the same have been listed again on the Bombay Stock Exchange. I recently sold these shares for Rs 3 lakh. Will I be eligible for tax exemption on the sale of these shares? Rao

An exemption will be available in respect of long-term capital gains under Section 10(38), if the Securities Transaction Tax has been paid at the time of sale of shares. The STT will be leviable if the sale of the shares is through a recognised stock exchange. In your case if the sale has taken place through a recognised stock exchange and if securities transaction tax has been paid at the time of sale, the long-term capital gains will be exempt. You may note that these shares being originally listed, getting de-listed and again getting listed would be of no consequence so long as securities transaction tax was paid at the time of sale of the shares.

I purchased 500 shares of TISCO and converted them into stock-in-trade. At the time of such conversion the market price of the share was around Rs 600 per share. I sold the shares at Rs 360 per share in the financial year 2005-06. What will be the tax implications on the sale of the shares of TISCO if it is an off-market transaction or, alternatively, where it is routed through a recognised stock exchange? Ashok Dalmia

The conversion of a capital asset into stock-in-trade is regarded as a transfer under Section 2(47). The charge in respect of capital gains will, however, arise only when the stock-in-trade is sold. The full value of consideration for computing capital gains would be the fair market value as on the date of conversion. The charge in respect of capital gains would also arise only in the year in which the stock-in-trade is sold by virtue of Section 45(2). At the time of sale of the stock-in-trade the difference between the sale price and the price on the date of conversion would be treated as business income subject to claiming other allowable expenses. In your case apparently there would be a loss under the head profits and gains of business or profession since the fair market value on the date of conversion into stock-in-trade was Rs 600 per share and since these shares have been sold at Rs 360 per share.

The capital gains computed as indicated above, may not be eligible for exemption under Section 10(38) since the conversion into stock-in-trade which is the event giving rise to the capital gains does not involve the levy of securities transaction tax. It will make no difference whether the transaction of sale is an off market transaction or routed through a recognised stock exchange in so far as the computation of capital gains is concerned. In the case of computation of business income also it would make no difference since the rebate under Section 88E would not be available even where the STT is paid since there is a loss from the business activity.

The rebate under Section 88E would be the lower of the securities transaction tax or the tax on business income, which in your case would be nil since there is a loss.

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

More Stories on : Income Tax | Income Tax | Tax Talk

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