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May 31, 2000

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"Are allowances taxable?"

The Rediff Money Channel presents everything you wanted to know about tax issues, but didn't know whom to ask. Chartered Accountants from Ganesh Jagadeesh & Co are here to remove all your doubts.

Readers' Note: Please keep your questions short.

For an overseas visit on business purposes, an amount of Per Diem was provided in form of Travel Cheques of USD . The total amount of per diem was calculated at the exchange rate prevailing at the time of taking travel cheques. When these USD Travel cheques were actually encashed at the overseas country for its currency, total amount of Per diem got reduced since the conversion was done at the exchange rate prevailing at that point of time. This resulted in reduction of eligible per diem. This difference between the eligible per diem amount and actual per diem amount was paid in Indian rupees after deducting tax and surcharge under head Special pay. The contention is that since amount was paid in Indian rupees in India, it attracts tax and surcharge.

Can you please confirm whether this contention is valid or not as stated by the Account personnel who well-qualified (CA) and well-experienced. However, my experience and understanding is that it is not taxable since the differential amount is paid in equivalent Indian rupees in lieu of foreign currency and must be treated as Travelling allowance/per diem allowance.

Sahasaram Lingam

As we have always been maintaining that all forms of allowances are taxable as salary, in this case too we believe that as the per diem allowance is in the nature of allowance, the differential on account of foreign currency fluctuation would also merit treatment on par with the travelling allowance and hence be taxable as salary.

You have earlier said that "rebate is provided under Section 80 RRA upto 75 per cent of the amount so earned in foreign currency and brought back in India (incentive for savings)." Can you explain further this rebate with some example. If I save Rs 90,000 out of my allowances in US and bring all this money back to India, how much tax do I have to pay? What rebate do I get?

Ashu Mahajan

We have expressed our opinion in our earlier answers that all allowances received by virtue of a contract of employment in India is taxable in the hands of the recipient. The rebate under section 80 RRA is allowed on the amount brought into India in convertible foreign exchange within the period of six months from the end of the financial year. You will be eligible for a rebate of Rs 67,500 if you have remitted Rs 90,000 into India in foreign exchange.

Is gold brought into India by NRIs liable for taxation or import duty?

Afsar Ali

There is no income tax liability on the import of the yellow metal. With regard to your second question, as the same does not pertain to personal taxation the same has not been answered here.

I left India to take up a job in US on June 25, 1999. I have filed my IT return till that year (till March 99) and had a PAN number. I was unaware of the tax clearance needed for going abroad, hence did not apply for it, thinking that all NRI income are tax exempt. How do I apply for one now? Do I have to pay any penalty for this? Do I need to file the return for the three months I was in India? As a salaried person, my tax was deducted by my Indian employer from the salary. How do I file the return now?

Reghu A Gopinathan

Tax clearance certificate is generally required at the time a resident leaves India not on a temporary visit. The idea behind this certificate is that whatever tax is due has been paid to the government treasury or the government is not deprived of its revenue and if any assessment of such person is pending there is some guarantor who would pay up in the assessee's absence.

If you are a NRI and are already staying abroad, then, it is not necessary to take tax clearance certificate now. However, you may appoint some one as your representative by giving him a power of attorney. Such representative may now file your return for the income earned by you during the said period of three months.

Send in your questions to perfin@rediff.co.in

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