HRA Exemption: LandLord's Pan Mandatory if Rent Paid Over 1,00,000 Per Annum

Not a good news for salaried person, who are living in rented house and claiming House rent allowance exemption under section 10 (13A )of Income Tax Act. As per CIRCULAR NO : 08/2013 F.No. 275/192/2013-IT(B) dated 10.10.2013 Income Tax department has recently has stated that  an employee who is claiming House rent exemption (HRA) and if annual rent paid by the employee exceeds Rs 1,00,000 per annum, it is mandatory for the employee to report PAN of the landlord to the employer.

Earlier Pan of landlord was mandatory if rent paid  was 1,80,000 p.a wef financial year 2011-12 ,now the limit has been significantly reduced to 1,00,000 p.a only wef financial year 2013-14.

It has to be noted that only the expenditure actually incurred on payment of rent in respect of residential accommodation occupied by the assessee subject to the limits laid down in Rule 2A, qualifies for exemption from income-tax. Thus, house rent allowance granted to an employee who is residing in a house/flat owned by him is not exempt from income-tax. The disbursing authorities should satisfy themselves in this regard by insisting on production of evidence of actual payment of rent before excluding the House Rent Allowance or any portion thereof from the total income of the employee.

Though incurring actual expenditure on payment of rent is a pre-requisite for claiming deduction under section 10(13A), it has been decided as an administrative measure that salaried employees drawing house rent allowance upto Rs.3000/- per month will be exempted from production of rent receipt. It may, however, be noted that this concession is only for the purpose of tax-deduction at source, and, in the regular assessment of the employee, the Assessing Officer will be free to make such enquiry as he deems fit for the purpose of satisfying himself that the employee has incurred actual expenditure on payment of rent. 

Further if annual rent paid by the employee exceeds Rs 1,00,000 per annum, it is mandatory for the employee to report PAN of the landlord to the employer. In case the landlord does not have a PAN, a declaration to this effect from the landlord along with the name and address of the landlord should be filed by the employee.

How to calculate  HRA exemption amount:

According to Rule 2A of the Rules, the quantum of exemption allowable on account of grant of special allowance to meet expenditure on payment of rent shall be the least of the following:

(a) The actual amount of such allowance received by the assessee in respect of the relevant period i. e. the period during which the accommodation was occupied by the assesse during the financial year; or

(b) The actual expenditure incurred in payment of rent in excess of 1/10 of the
salary due for the relevant period; or
(i) Where such accommodation is situated in Bombay, Calcutta, Delhi or
Madras, 50% of the salary due to the employee for the relevant period; or
(ii) Where such accommodation is situated in any other places, 40% of the
salary due to the employee for the relevant period,

For this purpose, "Salary" includes dearness allowance, if the terms of employment so provide, but excludes all other allowances and perquisites.

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EMPLOYEES STOCK OPTION PLAN (ESOP)

Employee Stock Option Plan are equity based transactions between the owner and its employees, wherein employees are offered stake in the company after the vesting period expires in the form of shares / options at some reduced price. The ESOPs are taxable as perquisites in the hands of employees. Perquisite shall be taxable in the hands of the employee only when shares are ALLOTTED TO HIM under ESOPs. The perquisite is not taxable when employee exercises his option to ESOPs.

Stages in Employees Stock Option Plan

There are three stages in Employees Stock Option Plan (ESOP) i.e.

STAGE I: OFFERING OF SHARES UNDER ESOPs

STAGE II: EXERCISE OF OPTION TO GET ESOPs

STAGE III: ALLOTMENT OF SHARES UNDER ESOP

TAXATION OF ESOPs

There have been various changes in the taxation of ESOP’s in the past 20 years. The Government finally seems to have found a logical way of taxing ESOP’s. The manner of computation of Tax of ESOP’s in the hands of the employee has been explained hereunder:-

1.       At the time of giving ESOP’s: The benefits arising on ESOP’s are taxed as Perquisites in the hands of the employee and form a part of the employee’s salary income. The employer is also required to deduct TDS in respect of such perquisite. The perquisite value is computed as the difference between the fair market value of the share and the Exercise price.

VALUATION OF PERQUISTES

Perquisites in respect of Equity Shares allottes or transferred under Employees Stock option Plan shall be worked out on the basis of Fair Market Value of ESOPs on the date when employee exercises his option to ESOPs.

Taxable perquisite in the hands of employees on the date of allotment of shares shall be determined as under:

	Fair Market Value (FMV) of the shares on the date on which the option is exercised by the employee	X
Less:	Amount paid by the employee in respect of the shares	Y
	Taxable Perks	(X-Y)

 

CALCULATION OF FAIR MARKET VALUE (FMV)

The fair market value (FMV) of any specified security or sweat equity share, being an equity share in a company, on the date on which the option is exercised by the employee shall be determined as under:

·         Where shares in the company are listed on a single recognized stock exchange: FMV shall be the average of opening and closing price of shares on the date of exercise of option. However, if on the date of exercise of option there is no trading in shares, the FMV shall be the closing price of the share on any recognised stock exchange on a date closest to the date of exercise of option and immediately preceding such date of exercise of option.

·        Where shares in the company are listed on more than one recognized stock exchange:  FMV shall be the Average of opening and closing price of the share on the date of exercise of option on a recognised stock exchange which records the highest volume of trading in the shares. However, if on the date of exercise of option there is no trading in shares, the FMV shall be the closing price of the share on a recognised stock exchange which records the highest volume of trading on a date closest to the date of exercise of option and immediately preceding such date of exercise of option.

·         Where shares in the company are not listed on a recognized stock exchange:  FMV shall be such value of the share in the company as determined by a Category I merchant banker registered with SEBI on the specified date.

Where specified date means

Ø  The date of exercise of option or

Ø  Any date earlier than the date of exercise of option, not being a date which is more than 180 days earlier than the date of exercise of option.

2.       At the time of sale of such ESOP’s by the employee: The gains arising on the sale of ESOP’s are considered to be Capital Gains; Capital Gains Tax is levied on such gains and tax is liable to be paid in the year in which such ESOP’s are sold. The Capital Gain is computed as the difference between the sale price and the price at which it was awarded by the Employer. The Capital Gains treatment further depends on the holding period of the ESOP’s i.e. if the shares are held for less than 12 months – Short Term Capital Gains Tax@ 15% is levied and if the shares are held for more than 12 months- Long Term Capital Gains Tax is levied (this is currently NIL). Thus, if such ESOP’s are held by the employee for more than 12 months, the gains arising on the sale of such ESOP’s is effectively exempt from Tax.

This Article has been Shared by Student of ICAI Palak Aggarwal. She can be reached at aggarwal.palak2809@gmail.com

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FILE YOUR SALARY RETURN EVEN IF WHOLE DATA NOT AVAILABLE BEFORE JULY 31

THIS ARTICLE MIGHT CLEAR SOME OF YOUR MYTHS AND DOUBTS
While 31 July is the deadline for filing your tax return, many taxpayers miss it. Some don't bother because all their taxes have been paid and they only have to file their return. Since this can be done till the end of the relevant assessment year (31 March 2013) without incurring any penalty, they take it easy. Others miss the last date because they don't have all the details required in the tax form.

These could include the TDS information or deduction sought by the taxpayer. From this year on, the tax forms also require the PAN numbers of recipients of donations and details of foreign assets. A taxpayer may decide not to file his return till he gets hold of these details. This may not be a wise move.

If you don't file by 31 July, you forego some of your rights as a taxpayer. For instance, if you file your return by due date, you are allowed to modify it any number of times till the time of assessment. If you file it after the due date, you cannot revise it. This can be a costly error because if there is some miscalculation in your tax liability, you won't be allowed to rectify the mistake. This is not such a big problem if you have missed out on some deduction for which you were eligible. All you stand to lose is a few thousand rupees you paid in excess tax.

What happens if you underestimate your tax liability because of a miscalculation, say, forgetting to include income from other sources. You can revise your return only if you adhere to the filing deadline. There is no penalty for voluntarily filing a revised return, but there could be a hefty one for under-reporting your income.

CARRY FORWARD LOSSES

There are other benefits that you stand to lose if you miss the 31 July deadline. Income tax laws allow you to carry forward some of your losses for up to eight financial years. These losses can be set off against capital gains made in the future. In other words, if you suffered capital losses in 2011-12, these can be adjusted against gains till 2019-20. What can be better news for investors who made losses due to volatile stock markets in 2011-12?

However, you won't be eligible for this benefit if you don't file by due date. The exception is in case of house property. The loss incurred by selling a house can be carried forward to subsequent financial years even if the return has not been filed by the due date.

ARE YOU EXEMPT FROM FILING?

There are many taxpayers who are under the impression that they are exempt from filing returns because their annual income is less than Rs 5 lakh. This exemption comes with several conditions. It is only for salaried taxpayers who have income from one employer and bank interest. If you changed jobs during the year, or have some fixed deposits, capital gains and rental income, you will have to file your return Besides, the taxpayer is not eligible for exemption if the income from savings bank interest exceeds Rs 10,000. Also, the individual should have reported the entire income from bank interest to his employer and tax should have been deducted on it and mentioned in Form 16.

Not many taxpayers will be able to fulfill these conditions. If you have doubts, it is best to be on the safe side and file your return. It doesn't require too much effort but you stand to gain a lot. For one, your return is a declaration of your income and will come handy when you seek a loan for a vehicle or a house. It is also useful because foreign countries don't want potential immigrants and insist on seeing your tax return before issuing a visa.
Filing tax return is especially important if you intend to buy property. In most states, registration of immovable property requires one to produce tax returns for the past three years. Filing returns also pads up your legally tenable income, which will be useful if you have to account for the wealth or property that you own.
FILE NOW, MODIFY LATER
If you have not filed your return till now, get going right away. Even if you don't have full details, file the original return before 31 July so that you don't lose out on the benefits mentioned earlier. You can then file a revised return later with all the missing details. Keep in mind that you can file a revised return only if the assessment has not been completed. To ensure this, it is best to file online.
Your online return doesn't get processed till you send the ITR V to the Central Processing Centre in Bangalore. You can do this within 120 days from the day of filing the return. This means that you will have enough time to gather all the documents and details, and file a revised return.

Download  TDSMAN ETDS Return Software at 10% Discount for FY 2013-14 (MRP: 3000/- DIS: 300/- NET: 2700/-) Free Trial Also Available


By CA Viresh Ruia

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HOW TO CLAIM RELIEF WHEN SALARY IS PAID IN ARREARS OR IN ADVANCE

Whereby any portion of assessee’s salary is received in arrears or in advance or by reason of his having received in any one financial year salary for more than 12 months or payment which under the provisions of section 17(3) is a profit in lieu of salary, he is hence taxed at a higher slab than that at which it would otherwise have been assessed. The Assessing Officer shall, on an Application made to him, grant such relief as prescribed. The Procedure for computing the relief is given in Rule 21.  This relief is provided in the financial year in which such arrears have been received.

 The Procedure to calculate the amount of relief when salary is paid in arrears or in advance:-

STEP 1

First of all, calculate the tax payable of previous year in which the arrears /advance salary is received on

1.       Total Income inclusive of Additional Salary

2.       Total Income exclusive of Additional Salary

The Difference between 1 & 2 is the tax on additional salary Included in total Income.

STEP 2

Now calculate the tax payable of every previous year to which the additional salary relates on

             3. The total Income including Additional Salary

   4. The Total Income excluding Additional Salary

Calculate the difference between 4 & 5 for every previous year to which the additional salary relates & aggregates them.

STEP 3

The Admissible Relief shall be the Excess between the tax on Additional salary as calculated under STEP 1 & STEP 2.

No relief if:

ü  There is no excess between the tax calculated on Additional Salary (Step 1 & Step 2)

ü  In respect of any amount received or receivable by an assessee on his voluntary retirement or termination of his service in accordance with any scheme, the assessee has claimed exemption u/s 10(10C) in respect of such compensation received on voluntary retirement in the same assessment year or any other assessment year.

WHERE AND HOW TO FURNISH INFORMATION FOR CLAIMING RELIEF

In case where the assessee entitled to relief is a government servant or an employee in a company, co-operative society, local authority, university, association, institution, he may furnish the particulars to his employer who is responsible for making the payment referred to in section 192(1) in specified form 10E.

In case of other employees, the application for relief shall have to be made to the Assessing Officer instead of Employer.

This Article has been Shared by Student of ICAI Palak Aggarwal. She can be reached at aggarwal.palak2809@gmail.com

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Employees can't claim VRS benefit as matter of right: Supreme Court

No employee, as a matter of right, can seek the benefits of voluntary retirement scheme (VRS) and the decision-taking power lies only with the employer firm, the Supreme Court has held.

"A voluntary retirement scheme introduced by a company, does not entitle an employee as a matter of right to the benefits of the scheme," a bench headed by Chief JusticeAltamas Kabir said.

The bench, also comprising Anil R Dave and Ranjana P Desai, said it was "well settled" that only the employer can decide VRS pleas of its employees.

"Whether an employee should be allowed to retire in terms of the scheme (VRS) is a decision which can only be taken by the employer company, except in cases where the scheme itself provides for retirement to take effect when the notice period comes to an end," it said.

The observation came in a verdict by which the apex court rejected the plea of C V Francis, a Kerala resident, that his termination from the post of a manager of Steel Authority of India Ltd (SAIL) at Bokaro in Jharkhand on account of unauthorised absence in 1999 was illegal as he had already applied for the VRS.

"We are not...inclined to interfere with the orders impugned in the Special Leave Petition which is, accordingly, dismissed," the bench said.

Francis, who had taken up an employment in the USA after applying for the VRS, had contended that his plea for VRS came into effect on the expiry of the period of notice as the employer did not take any decision on his plea and hence, it should be construed as deemed acceptance.

Besides seeking VRS, Francis had left to the US after taking leave, but his subsequent leave applications were not accepted.

SAIL termed his subsequent absence as unauthorised and later, initiated disciplinary proceedings leading to his termination from the service.

The single and division bench of the Jharkhand High Courtd had rejected the plea of Francis on the issue.

Source: Economic Times

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HOW TO DEDUCT TDS ON SALARY

Salary includes every payment made by an employer to his employee for Services Rendered. It is an inclusive definition and includes monetary as well as non-monetary items.

Any person responsible for paying any income under the head Salaries is to deduct Tax on the Amount payable at the Average rate of the Income Tax computed on the basis of the rates in force for the financial year in which the payment is made. Therefore the liability to deduct Tax at Source in the case of salaries arises only at the time of payment.

PROCEDURE:

1.       TDS ON SALARY

• Calculate Tax on Gross Salary received by the Assessee from his Employer during the Previous Year
• Calculate TDS to be deducted every month= Tax ÷ 12

TDS is to be deducted only when the salary exceeds the exemption limit.

2.       TDS ON NON-MONETARY PERKS PAID BY EMPLOYER

• Calculate Tax on Gross Salary (including Non-Monetary Perk)
•  Calculate Average Rate of Tax =Gross Salary ÷ Tax
•  Calculate TDS on Non-Monetary Perk =Average Rate of Tax (as computed above) * Non-Monetary Perk
• Amount required to be deposited every month by employer =TDS ÷ 12

TDS paid by employer will be exempt. It will not be added to the employee’s salary & also employer will not be allowed to deduct tax as per sec 40(a)(v) while computing his income. Employer will get the credit of TDS paid by employer at the time of computation of his Net tax liability.

3.       SALARY FROM MORE THAN ONE EMPLOYER

Where during the Previous Year the Assessee is employed simultaneously under more than one employer or has changed the employment during the Previous Year he may furnish to the employer of his choice or the subsequent employer such details of salaries due or received by him from other employer.

Deduction of TDS by

·         First Employer to whom No Details have been given

Same Procedure to be applied as discussed in point 1

·         Second Employer to whom Full Details have been Furnished

Income from Salaries
Salary from first employer (Salary per month* No. of months worked)	xxx
Salary from second employer (Salary per month * No. of months worked)	xxx
Total	xxx
Less: Deductions if any	(xxx)
Income under the Head Salaries (a)	xxx
Computation of Tax
Tax on (a) including Education & Secondary Higher Education Cess	A
Less: TDS deducted by first Employer	B
TDS to be deducted by second employer (b)	(A-B)
TDS to be deducted every month= (b) ÷ 12

4.       IF AN EMPLOYEE RESIGNS FROM SERVICE

If an Employee resigns or otherwise leaves the service, tax should be deducted only on the salary due and payable upto the date on which he leaves or resigns from the service.

This Article has been Shared by Student of ICAI Palak Aggarwal. She Can be reached at aggarwal.palak2809@gmail.com

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