Allowance That Is Not Spent Will Be Taxable

Updated: Jan 26 2003, 05:30am hrs
In the annual growth charts for CGGF 1986, nine months related to FY 01-02 and three months to the next FY, UTI has deducted tax at source. The annual statements were received much after filing of the tax returns for AY 02-03. This has raised many issues, like non-inclusion of income in the tax return proportionately, incorrect deduction of tax at source by UTI, nine months of 2001-2002 and three months of 2002-2003 being clubbed together for both the purposes, denial of opportunity to the investors to furnish forms 15H. UTI seems to have made a mess of the whole thing. Are they in a position to reverse the TDS made by them Similar confusion will take place year after year unless some advice is sought by them. All investors have been taken aback. Please advise suitably.

The whole confusion arises out of the fact that the tax becomes payable in the financial year during which the income is received, even if a part of the income pertains to the last year. In other words, if the bank pays the interest on a bank FD for one year on 2.4.02 the tax on the entire amount is payable in FY 02-03 even if the interest for 363 days pertains to FY 01-02, TDS or the advance tax is to be applied on the basis of same principle.

Along with the cheque received from UTI you must have received a tearaway portion giving the details related with the cheque. That is your TDS certificate. Filing of Form-15H is your responsibility. Nonetheless, I am sure that UTI has dispatched the Form-15H blanks to you long ago. Either the post office has goofed up or you have ignored the receipt.

You may be aware that in all the laboratories/ institutes of Council of Scientific & Industrial Research (CSIR, Govt. of India) and universities, the staff is getting honorarium/consultancy from project works within India.

The consultancy amount is paid after deducting project expenditures and 1/3rd share of CSIR. The CSIR is exempted from the tax for this amount earned, whereas staff is paying tax on this amount of consultancy. Please clarify whether the full income tax exemption on the amount of research honorarium/consultancy can be availed under the following sections of Income Tax Act (1):

Section 10 (5B): This indicates that any income (ie honorarium, consultancy etc) of an individual by rendering technical services in the employment for carrying on scientific research will not be included in total income. In this section the prescribed authority is CSIR itself i.e. Secretary, Department of Scientific & Industrial Research, Government of India.

(2) Section 10 (14) / Rule 2BB (1): Under this section, the special allowances and benefits are fully exempted from income tax. This describes that any allowance (by whatever name called) granted for encouraging the academic, research and other professional pursuits. Thus, the grant for encouraging research is by way of special benefits and it is not necessarily to meet expenses. That is why the word expenditure is particularly silent in this special allowance/benefits clause related to research pursuits otherwise no encouragement (copy enclosed, including Notification No. SO 267(E), dt. March 29, 1990). Therefore, please inform about the applicability of these sections, so that we can get full income tax exemption at source.
JK Mohnot,

You have misunderstood Sec. 10(5B) which exempted (note the past tense) the tax paid by the Indian employer for an employee who was a technician and who was an NRI for the preceding 4 years. The whole salary was not exempt but the tax thereon, paid by the employer, was not treated as perk and was exempt.

Sec 10(5B) has been omitted by FA02 w.e.f. 1.4.02. Prior to its omission, it was riddled with lots of litigations on the questions like --- who is a technician, what are construction and manufacturing operations, is the individual employee of the Government or a local authority or any corporation in India or employee of a foreign company deputed in India, etc. If the section was found applicable, the tax paid by the Indian body directly to the exchequer was not treated as a perk chargeable to additional tax. After the deletion of Sec. 10(5B), it will be treated as a perk.

I would like to draw your attention to Sec. 10(10CC) introduced by the same FA02 that deleted Sec. 10(5B). This exempts tax actually paid by an employer, on whole or part of any perquisites (not provided for by way of monetary payment) on behalf of an employee. Note that this employee does not necessarily have to be an NRI for the preceding 4 years.

In the case of Sec. 10(14) any allowance granted for encouraging the academic research and training pursuits in educational and research institutions is exempt. This allowance should be specifically granted to meet expenses wholly, necessarily and exclusively incurred in the performance of the duties of an office or employment of profit. If the recipient does not apply the entire allowance for the purpose it is meant for and saves a part (or whole) of it, that part becomes taxable.

Media reports indicate that Alliance Capital, Zurich and IDBI Principal MFs are likely to be acquired by others. Dundee has already closed its shop. What is the impact of such developments on the investors in terms of security and NAV of MF schemes of these funds
A B Mehta,

There is no adverse effect on the investors. Usually some other MF or an interested party picks up their share and the fund continues. Only the trustees and management change and nothing else. Many times, even the staff, including fund management remain unaltered. If you remember, Zurich had taken up ITC Threadneedle schemes and the unitholders of ITC Threadneedle did not suffer any losses.

All the investors are invariably provided with an exit option. If someone desires to exercise it, he need not pay the normal exit load.

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