Tax Column

Tax Queries By Jayesh Dadia Chartered Accountant

My son is abroad. I want to remit approximately ₹ 50 lakhs to him for his maintenance and education. The banker told me that they will collect tax at source at 5 per cent on the foreign remittance. Could you let me know what is the correct law and its compliance?
 

There is a new tax provision under Section 206C(1G) inserted by the Finance Act 1920, which imposes tax collection at source (TCS) at 5 per cent on remittance made under the Liberalised Remittance Scheme (LRS). According to this section, TCS is applicable if the total remittance amount in a year exceeds ₹ 7 lakhs. As a result, if you transfer ₹ 50 lakhs during the year, TCS will be levied at 5 per cent on ₹ 43 lakhs i.e. ₹ 50 lakhs less ₹ 7 lakhs. 

The TCS amount paid by the banker on your behalf will be available as tax credit to you at the time of filing the Income Tax Return (ITR). If no tax is owed, the TCS amount can be claimed as refund from the Income Tax Department. Further, TCS in case of foreign remittance for educational purpose will be 0.5 per cent. However, this exemption applies if the funds are transferred from a loan obtained from an approved financial institution. No concession is available in the rate of the TCS if you remit the funds out of your own corpus for educational purpose.
 

I am an individual. If I contribute an amount of PPF in the name of my granddaughter, will I be entitled for deduction under Section 80C of the Income Tax Act?
 

No, the benefit is available to parents and not the grandparents. A grandfather is not eligible to claim under Section 80C for the amount contributed by him to the PPF account of his grandchildren irrespective of the fact that the grandchildren are minor or adults. As per Section 80C(4), an individual includes himself, spouse of individual and any children of such an individual.
 

I am an employee in a senior position of a closely held company that has decided to provide a car with a driver at my disposal. What would be the tax implication for me and the company? 

The company can claim depreciation which is allowable as deduction since it owns the car. The cost of petrol and repairs are also allowable as deduction under Section 37(1) of the Income Tax Act. For you as an employee, the perquisite amount as provided in the IT Act read with IT Rules will be added as a part of your salary and taxed. If the car is used both for official and personal purpose, the perquisite will be ₹ 1,800 per month if the cubic capacity of the car is below 1.6 litres and ₹ 2,400 if the cubic capacity exceeds 1.6 litres.
 

If the driver is provided by the employer, ₹ 900 per month will be considered as additional perquisite value for the employee. However, if the car is used wholly and exclusively for the purpose of the employee’s official duties, no value of perquisite will be added provided documents specified under the IT Rules are maintained by the employer. If the car is used exclusively for private or personal purpose of the employee, the actual amount of expenditure incurred by the employer on the running and maintenance of the car shall be considered as perquisite for the employee. Therefore, it is best that all these specifications are cleared by the company before you start using the car.
 

I am associated with a company called ABC (P) Limited where I hold more than 60 per cent of the shareholding and draw remuneration of ₹ 5 lakhs per month. From this financial year, the company has started paying remuneration of ₹ 2 lakhs per month to my wife who is basically a homemaker but attends office regularly. Do you see any tax implication for both the company and me?
 

In your case, the Income Tax Department could invoke clubbing provisions given under Section 64(1)(ii) of the Income Tax Act where remuneration received by the spouse of an individual is clubbed with the income of such an individual, particularly when the spouse has no technical or professional knowledge or experience. If the clubbing provision is invoked, the remuneration of ₹ 2 lakhs may be taxed. However, credit for taxes paid on the remuneration of your wife will be available to you once the Income Tax Department invokes the clubbing provision. For the company, claim of remuneration may be disallowed as the same is paid to a person who has not rendered any services. However, the company has to maintain proper records to justify services rendered by the spouse so that deduction of remuneration is allowable.