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July 4, 2000

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"Is rebate for CPF deduction available?"

The Rediff Money Channel presents everything you wanted to know about tax issues, but didn't know whom to ask.

I am a retired person receiving a pension from a private limited company. Is the pension received from the employer treated as income under the head 'Salaries'? If yes, is it eligible for standard deduction?

Sudhakar V Gokhale

Under section 17(1) of the Indian Income Tax Act, 'salary' is defined to include pension. Thus, the pension received by you can be treated as income under the head 'Salaries'. On this receipt of pension, you can claim standard deduction under section 16(i).

Here is the standard deduction you can avail of if pension earned is the only income under the head 'salaries'.
Pension of more than Rs 500,000: no standard deduction
Pension of more than Rs 100,000: Rs 20,000
Pension equal to or more than Rs 75,000: Rs 25,000
Pension less than Rs 75,000: 1/3rd of the pension

I recently received arrears for past three years from the amount they have deducted on CPF contribution and income tax. Is rebate for CPF deduction available?

Naresh Sharma

Based on our understanding you should be eligible for deduction u/s 88 on CPF deductions made out of salary received in arrears. Generally salary received in arrears is taxed at the time of receipt (if not taxed earlier on due basis). This means that technically you are making contributions to PF out of your current years salary and hence the rebate should be available to you. You could also claim relief from tax liability under section 89(1) in respect of salary received in arrears.

I earn a salaried income and tax is deducted by my employer. However, I have missed filing my returns for the past three years, having moved around the country on various assignments. Also, the only return that I filed was in Bangalore with a "PAN not allotted yet" status. How can I rectify this situation?

M Sundarraj

Under section 139(1) of the Income Tax Act, if you are salaried employee you need to file your returns by June 30 of the relevant assessment year. In case return is not filed on the due date you can file belated returns up to one year from the end of the relevant assessment year. For your purpose we have briefly put in the applicability of time limit in the table below.

If salary is for the year 1996-97 1997-98 1998-99 1999-2000
The assessment year is 1997-98 1998-99 1999-00 2000-01
Then due date will be June 30, 1997 June 30, 1998 June 30, 1999 *June 30, 2000
Latest date by which you can file your return March 31, 1999 March 31, 2000 March 31,2000 March 31, 2002
Therfore you Cannot file Cannot file Can file Can file on the due date itself

*If you file a return after the due date you will be liable to interest penalties under section 234A. However, in your case, as your entire tax has been deducted at source, such penalty may not be relevant.
Moreover, an assessee would be liable to a penalty of Rs 1,000 if the return has not been filed before the end of the relevant assessment year (wef: April 1, 1999). With regard to the PAN, if you have not yet received the same for your earlier application, you could go ahead with filing for a fresh PAN application. Moreover, if you have not received the PAN, you can file your income tax return with "PAN Applied" status.

The maximum amount one can deposit in the PPF account is Rs 60,000, to claim a rebate of Rs 12,000. Can I deposit more than Rs 60,000? Will interest be paid?

Stephen

You can deposit more than Rs 60,000 in PPF. However, you would be eligible to claim rebate under section 88 of the IT Act only upto the limits specified therein (ie Rs 60,000).
You would be eligible to earn interest on the amount deposited at the same rate of interest regardless of the fact that the investment exceeds Rs 60,000. Moreover, such interest earned is also exempt from tax.

I applied for my PAN in June 1997 in Mumbai. However, I went abroad in July 1997. I was an NRI until April 1999 before returning to India permanently. Since I had not received my PAN, I re-applied for the same with the Income Tax Department in Pune. After a lot of delay, they informed me that there was already an application on my name (the same application that I had made in July 1997 in Mumbai) and asked me to get in touch with the Mumbai IT department.
However, the e-mail that I sent to the Mumbai IT department along with a registered letter, came back to me saying 'Address not found'. The Pune office is not able to give me the correct address of the Mumbai office. Can you please tell me what to do now?

Atul

We would be able to help you better if you could provide us details regarding at-least the following:

  • Are you employed?
  • If yes, the name of the employer and address.
  • If no, what are your sources of income?
  • Is this the first time you would be filing your return?
  • If no, where have you been filing your returns in the past?
Generally, in case an assessee has been filing his returns, then the PAN application is to be made to the same assesing officer and if it is a new case then such application is to be made with regard to the circle or ward having jurisdiction of the assessee.
In your case if you have the acknowledgement of the PAN application made earlier in Mumbai, you could easily locate the ward or circle number from the round stamp affixed on the acknowledgement.
You could make use of the Mumbai IT department's web site comprising a helpline. The address is www.mumcit.com

Assume my salary is Rs 10,000, HRA amounts to Rs 2,000 and actual rent is Rs 2,500. According to the criteria under section 10(13)A of the Income Tax Act, the deduction will amount to Rs 5,000, Rs 2,000 according to the second and excess of rent paid over 10 per cent of salary is Rs 1,500 (depending on the various criteria). Since the least qualifies, the sum valid will be Rs 1,500.

How is the salary assumed? Is it the total salary including all allowances as well as HRA? What are the items covered under the salary. Please give a break-up and clarify.

Please also provide me the answers for the following queries:

  • Details of tax exemptions and it's limit under 88C or so. Is it available seperately for PPF, LIC, Bank Deposit and other savings etc. Are they all clubbed together for the allowed maximum limit?
  • Specify the possible exemption catagories like HRA, conveyance allowance, DA, CCA, food allowance and medical allowance, training allowance, business travel allowance (for domestic and international) etc.
  • Hints and suggestions for getting maximum exemptions and reducing income tax.
  • Income Tax calculation to demonstrate a typical case covering the above queries.

Damodaran C

HRA:
According to Rule 2A of The Income Tax Rules, 1962 "salary" for the purpose of section 10(13A) shall include dearness allowance, if the terms of employment so provide, but excludes all other allowances and perquisites. It also includes commission based on a fixed percentage of turnover achieved by an employee, if terms of employment so provides. Thus, all the allowances are to be excluded while calculating HRA exemption under section 10(13A).

Possible Exemption Categories:

  • All reimbursements of official expenses are free of tax.
  • While fixed medical allowance is always chargeable to tax, reimbursement to the extent of Rs.15000 is not taxable. Therefore you should go in for reimbursement of medical expenses instead of fixed medical allowance.
  • Allowance granted to meet expenditure for the purpose of commuting between place of residence and the place of duty to the extent of Rs.800 per month is exempt.
  • Conveyance allowance granted to meet the expenditure on conveyance in performance of duties of office to the extent utilized for office purposes is not taxable.
  • Children education allowance @ Rs.50 per month per child up to a maximum of 2 children is exempt from tax.
  • Any allowance granted to an employee to meet the hostel expenditure on his child @ Rs.150 per month per child up to a maximum of 2 children is exempt from tax.
  • We have not given any example due to space constraints but we would be glad to give you any clarifications if you have any specific problem on hand.
Tax Rebate
We believe you are referring to rebate u/s 88 and not to 88C. We have inferred this because you are referring to investments such as LIP, contribution to PF etc. Section 88c has been introduced in the Finance Act 2000 with effect from April 1, 2000 and has been specifically introduced for women. Moreover, no investment is required to avail of rebate under this section.

Tax rebate under section 88 is available @ 20 per cent on sum total of all eligible investments specified in that section. Hence as you said, all the eligible investments under this section are to be clubbed to arrive at the specified limits for the purpose of claiming rebate.

Rebate under section 88 can be a maximum of Rs 12,000 that is even if the sum total of above mentioned items exceed 60,000 still the rebate will be only Rs 12,000. However, in case a person invests up to Rs 10,000 in shares or debentures forming part of any eligible issue of capital (approved by the board) by a public company involved in the infrastructure sector, the total rebate can be extended up to Rs 14,000.

Sum of items mentioned above Investment in infrastructure sector Then Rebate under section 88 will be
54000 10000 12800 (10800+2000)
65000 5000 13000 (12000+1000)
50000 20000 14000 (10000+4000)
45000 30000 14000 (9000+5000)

Note: From the assessment year 2001-02 the maximum amount of repayment of housing loan eligible for rebate u/s 88 has been raised to Rs 20,000 from earlier Rs 10,000 and consequently total amount of rebate will be increased to Rs 14,000 where there are no investments in infrastructure shares or bonds and to Rs 16,000 in case of investments in infrastructure.

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