T. Banusekar

My employer company reimburses the mobile phone expenses incurred by the employees in the sales team. These are official expenses incurred on business calls. My employer also reimburses the telephone expenses of some employees. Will the Fringe Benefit Tax be payable on such reimbursement of expenses? — Gurdeep Singh

The reimbursement of mobile phone expenses and other telephone expenses will be subject to the FBT. It will be of no avail to state that these are only official expenses. Even in such a case the FBT will be payable by the employer.

I am a salaried individual. I recently encashed an NSC on maturity. How will this be treated for tax purposes? Will it be exempt or will it be chargeable to tax? — Ravindran Naidu

The principal amount invested and got back on maturity will not be subject to tax in your hands. The interest will, however, be subject to tax based on the method of accounting regularly employed by you in respect of such income.

If you are following the mercantile system of accounting, it will be taxed in the year of accrual while if you are following the cash system of accounting, it will be taxed in the year of receipt. You may note that since the interest stands reinvested, except in the year of maturity, the interest will be eligible for rebate under Section 88/Section 80C.

I am a business man and my 19-year-old daughter wants to gift me Rs 50,000. I understand that there will be no tax in her hands on making the gift. I would like to know whether it will be taxable in my hands? — Lalit Mittal

The gift of Rs 50,000 received by you from your daughter will not be taxable in your hands. Section 56(2)(v) specifically provides that a sum of money received by an individual from a relative without consideration will not be taxable in the hands of the recipient.

One of the relatives specified in the explanation to this provision is the lenial descendent of the individual and therefore the sum received from the daughter without consideration will not be taxable in your hands. You may further note that under this provision an aggregate sum of Rs 50,000 received in a year without consideration will not be taxable even if it were received from a non-relative.

I am a retiree. I had purchased a house in Pune in 1996 for Rs 2.20 lakh. I sold it for Rs 37.5 lakh in 2006.

I intend purchasing a flat; its construction is to start shortly, and completed in 24-36 months. I will be required to pay the builder in instalments. Please suggest how to invest so that the long-term capital gain tax liability can be avoided and at the same time, I will have enough liquidity to pay the instalments to the builder. I do not possess any other house in my name. — K. K. Mallya

Section 54 allows an exemption on the sale of a residential house and reinvestment in another residential house.

The reinvestment in the new residential house should be by way of purchase within one year before or two years after the date of transfer or by way of construction of the new residential house which should be completed before the expiry of three years from the date of transfer of the capital asset. This exemption is available subject to satisfying the following conditions:

The assessee is an individual or a HUF,

The gain arises from the transfer of a residential house being a long-term capital asset, and

The income from such asset is chargeable to tax under the head `Income from house property'. The exemption would be available to the following extent:

If the amount invested is more than or equal to the capital gain, the whole of the capital gain.

If the amount invested is less than the capital gain then to the extent invested.

For the purpose of claiming the exemption under Section 54, the amount not invested towards the purchase of the new asset within one year before the date of transfer or which is not utilised for the purchase or construction of the new asset before the due date for furnishing the return of income for the relevant assessment year may be deposited before the due date for furnishing the return of income, in any bank or institution in a specified account known as "Capital Gains Account Scheme".

The proof of having so invested the same should be furnished along with the return of income and if this is done, this amount invested will be deemed to have been utilised for the purpose of purchase or construction of the new asset.

The amount so invested may be withdrawn for the purpose of purchase or construction of the new asset within the specified time. If within three years from the date of transfer of the original asset, the money so invested is not utilised for the purpose of investment in the new asset, the same shall be treated as income of the year in which the three year period from the date of transfer of the original asset expires.

The salary of one of our employees was below Rs 10 lakh up to November 2006. In December, his salary was increased thus bringing it to more than Rs 10 lakh for the financial year. Till now we had deducted only the income-tax and the education cess from his salary. Now since his salary is above Rs 10 lakh, should we increase the tax by the surcharge of 10 per cent for the full year on the entire salary and recover the same in the remaining months. — Ramesh

You will have to increase the tax by the surcharge of 10 per cent in computing the tax to be deducted at source on the entire tax on salary income.

You may note that the Finance Act provides for a marginal relief where the total income exceeds Rs 10 lakh whereby, if the total income of the individual exceeds Rs 10 lakh the incremental tax cannot exceed the incremental income. In other words if in the case of an individual the total income is Rs 10,05,000 the tax including surcharge and additional surcharge (education cess) would normally have been Rs 2,82,183, while the tax and education cess on Rs 10 lakh would have been only Rs 2,55,000. This would mean that the incremental tax is Rs 27,183 as a result of the increase of income by Rs 5,000. To avoid this anomaly the tax on Rs 10,05,000 would be restricted to Rs 2,60,000 whereby the incremental income of Rs 5,000 results only in an incremental tax of Rs 65,000.

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

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