Tax Queries By Jayesh Dadia Chartered Accountant
I am employed with a closely held private limited company. During the current financial year, I resigned and claimed encashment of leave salary of ₹ 3 lakhs. The employer wants to tax this amount since the same is encashment not on retirement but on resignation. What is your view?
Under section 10 (10AA) of the IT Act, any payment received by an employee of the private sector at the time of retirement on superannuation or otherwise is entitled for exemption to the extent of limit under that section. Most of the companies are of the view that exemption on leave encashment is available only at the time of retirement. This is not the correct view. Retirement for the purpose of Section 10 (10AA) of the IT Act also includes severance of employer and employee relationship by resignation.
The word used in Section 10 (10AA) of the IT Act “at the time of retirement whether on superannuation or otherwise” clearly indicates the intention of legislature that on resignation also an employee is entitled exemption. On plain reading of Section 10 (10AA) of the IT Act it is clear that exemption is available under the said clause to the retiring employee in respect of amount received by him or her by way of encashment of unutilised earned leave standing to their credit whether on superannuation or otherwise. Thus, given that there is termination either through retirement or resignation, an employee is entitled for exemption. The Bombay High Court in the case of CIT versus D P Malhotra (229 ITR 394) has also held similar views.
One of our neighbours has left India forever. Due to our long relationship, he has given gifts to many people in the building. He has also given me a gift of ₹ 5 lakhs by cheque. The amount received by various people varies from ₹ 20,000-200,000. Does this voluntary gesture have any tax implications?
Yes, there is a tax implication. Under Section 56(2)(x) of the Income Tax Act, any person who receives in any previous year from any person any sum of money in excess of ₹ 50,000 is liable for tax payment. However, if the amount is received from a relative, as defined under the IT Act, it is not taxable. In your case, your neighbour is not your relative and therefore the amount of ₹ 5 lakhs is taxable.
I have received ₹ 2 lakhs from my employer towards medical treatment of myself and my wife related to the corona virus. Will this amount be taxable? If not, will I have to produce any documents to justify my claim?
The Finance Act 2022 has inserted a new clause to Section 17(2) of the Income Tax Act which provides that any sum paid by an employer in respect of expenditure incurred by an employee or his relative in the treatment of corona virus shall not be considered as perquisite. Therefore, in your case, ₹ 2 lakhs received by you from your employer towards medical treatment is tax-free. However, you are required to submit certain documents to your employer such as corona virus positive reports of both persons along with diagnosis and treatment reports and invoices of hospitals and drugs within six months from the date of testing positive for the virus.
I am a housewife. For the current financial year 2021-22, my total income is less than ₹ 250,000. However, I hold foreign assets outside India which were gifted to me by my daughter. Also, during this financial year I travelled abroad and incurred expenses of more than ₹ 2 lakhs. Since my income is below the taxable limit, do I have to file my IT return for the financial year 2021-22?
Normally when an individual’s income is below the taxable limits, then he or she is not required to file return of income. However, if an individual has assets outside India, he or she would be required to file the IT return in India even though the total income is below the taxable limit. Further, under the 7th proviso to Section 139(1) of the Income Tax Act, a person is required to file return of income if he or she has incurred more than ₹ 2 lakhs on foreign travel. There are other criteria also for filing tax returns compulsorily even if the income is below the taxable limit. Therefore, filing the return will avoid any penalty.