BOMBAY CHARTERED ACCOUNTANTS SOCIETY PANEL DISCUSSION ON CASE STUDIES ON SALARIES AND PERQUISITES - SECTION 192 Panelists Mr. Milin Mehta (MM) & Mr. Nikhil Bhatia (NB) Case Study 1 (MM) Mr. X is the CEO of ABC Ltd. The salary, allowances, perquisites due to him (received / receivable by him during 01.04.2006 to 31.03.2007) are given below. You are requested to work out his Income Tax liability for the Assessment Year 2007-08. 1. Salary @ Rs.3,00,000/- p.m. 2. Taxable allowances @ Rs. 2,00,000/- p.m. 3. He is being provided 1 computer at home plus 1 laptop and 3 mobiles (total cost of all such equipments is Rs.2 lakhs, 2 mobiles are used by his family members). 4. Telephone bill (at residence) including mobile phones during year is Rs.80,000/- which is incurred by Company. Out of above, Rs.25,000 is for mobile bills of family members. 5. During his official foreign tour at New York, he was permitted to extend stay for holidays. His family members have joined him for this holiday. Total cost for such holiday period was Rs.6,50,000/- incurred by Company. He has stated that foreign collaborators had invited his family (for get together of CEO s of collaborated Company all over the world), therefore they had joined him. 6. Company incurred for medical expenses on his father, in Breach Candy Hospital for cancer treatment Rs.7 Lakhs. In addition, medical expense (including for heart check ups) incurred by members of his family during the year aggregating to Rs.60,000/- was reimbursed by company.
7. He is being reimbursed for educational expenses incurred in India and abroad for his children Rs.1,50,000/- 8. He is being reimbursed for books, periodicals, trade magazines, journals etc. Rs.55,000/- during year. He has also attended Management Training Course of 2 months at Harvard s Business School. Total expenses incurred by company were Rs.10,00,000/- 9. He has been provided with 2 credit cards, total expenses incurred by company on this card were annual membership fees Rs.5,000/-, and towards expenses incurred Rs.1,25,000/- (out of which he has reimbursed to company Rs.50,000/- towards his personal shopping expenses). 10. All senior employees are provided executive lunch, tea, snacks during office hours. Direct cost of such lunch is Rs.100/- per day and tea, snack is Rs.40/- per day. They are also provided coupons to be used at any hotels etc. for taking meals outside office, (if they are on outside office duties) cost per such meal is Rs.250/-) 11. Company has own Provident Fund, Gratuity and Superannuation Trust. Total interest credited to employees account to is @ 12% p.a. on all these 3 Trusts. Please consider the value of perquisite to be worked out by the company in A.Y. 2007-08. You are requested to advise the Company on the amount of withholding tax to be deducted on a monthly basis. (MM)
Case Study 2 (NB) Ms A is the Vice President of ABC Ltd. The salary, allowances, perquisites due to her (received / receivable by her during 01.04.2006 to 31.03.2007) are given below. You are requested to work out her Income Tax liability for the Assessment Year 2007-08. 1. Salary @ Rs.2,00,000/- p.m. 2. Bonus Rs. 10,00,000/- 3. Conveyance provided - 1 st car 1.8 H.P for office use, 2 nd car 1.5 H.P for personal use. She is also allowed to use car from pool of cars of the Company, for official duties. Two drivers are employed by Ms. A on salary of Rs.6,000/- p.m. per driver. Their salary is reimbursed by Company to Ms. A. 4. Furnished Accommodation provided by Company. Rent paid by Company to owner of house is Rs.25,000/- p.m. In addition, Company pays society charges and municipal charges etc. of Rs.5,000/- p.m. Furniture provided in house, costing Rs 8 lakhs. Electricity and gas bills paid by the Company amounting to Rs. 2,50,000. 5. She is also provided house at Pune to stay during her visit for official work. (Total rent Rs. 8,000/- p.m.) 6. Watchman, Domestic servant and Gardener is provided by Company. Total salary paid is Rs.20,000/- p.m.. She is also been provided with a helper for assisting in her work at residence etc. Salary Rs.10,000/- p.m. paid by Company. 7. Pantaloons voucher on new year 01-01-2007 Rs. 5,000/- and cash gift of Rs.2,000/- on occasion of Birthday and cash gift of Rs. 3,000 on occasion of Marriage Anniversary.
8. She is allowed Leave travel facility once a year with her family. Total expenses incurred by Company on travel fare Rs.2,50,000/- on airfare out of India and stay charges etc. Rs.4,00,000/- 9. She has been given life membership of a club (in her individual name) to be used by her and her family members. Entrance fees of Rs.3,50,000/- and refundable deposit (after 25 years) of Rs.4,00,000/- is paid on 01.06.2006. During the year expenses are incurred at club for Companies work was Rs.30,000/- which was reimbursed by Company. Please consider the value of perquisite to be worked out by the company in A.Y. 2007-08. You are requested to advise the Company on the amount of withholding tax to be deducted on a monthly basis. (NB) Other Questions 1. (a) What is the employers responsibility and liability in respect of employee joining employment in the middle of the financial year. The employee is unwilling to give details of salary and withholding tax from previous employment. Should the new employer consider the following while deducting the tax at source? Basic exemption limit Investments made during the previous year but prior to joining the employment. (b) If a person has two employers simultaneously, on whom does the liability to deduct tax at source arise? (MM)
2. X is in employment of A Ltd. drawing salary of Rs. 4,20,540/-. During the year, he contributes Rs. 30000/- to PPF. He has disclosed the following additional information to the employer:- Rs. Professional Income from Consultancy (Net) - 50,000 TDS U/s 194 J on consulting Income - 20,000 Losses under the head House Property - (1,40,000) Loss under the head Short Term Capital Gain - (5,000) Donation covered u/s 80G - 50,000 What will be the withholding tax liability & how will it be calculated by the employer? (MM) 3. (a) Can an employee claim deduction u/s 10(13A) from HRA received in respect of rent paid and simultaneously claim deduction in respect of Loss from House Property towards Housing Loan interest paid by him amounting to Rs. 1,50,000 if the said property is in a different city from the regular place of work. Would the answer differ if the house property is in the same city? Please note that the house property is not let out. (b) If the employer has hired accommodation for its senior employees but recovers the entire rent paid from the respective employee, would any perquisite arise in the hands of the employees. If 20% of the salary and allowances is higher than rent paid and recovered, would there be any perquisite value. Reference may be made to SC decision in the case of Arun Kumar & Others v UOI, 286 ITR 89 and the proposed amendment in section 17 in the Finance Bill 2007. (c )Mr. A is a director in ABC Pvt. Ltd. As per terms of appointment, he is paid monthly salary of Re.1/- & is not entitled to any bonus/incentive etc. Company has provided to him unfurnished accommodation. Company has taken on lease a
flat on monthly rental of Rs.1,00,000/- and has provided the same to Mr. A. How will the perquisite value be determined and how will the tax be deducted? (MM) 4. (a) If TDS certificate of earlier employer is not produced by an employee then can the employer deduct tax on the basis of information/ declaration submitted by the employee? (b) Form No. 16 was not given to an assessee by his employer. Therefore the assessee filed the return without Form No. 16? What are the consequences and what remedies are available to him? (c ) A Municipal Corporation has issued Salary certificate in Form 16 mentioning the salary from March 1, 06 to February 28, 07. Is the certificate in order? If yes, how would the credit for TDS be computed for the AY 2007-08? (NB) 5. (a) Is there any provision whereby employer can give refund of excess tax deducted to the employee within the year/ after year end? (b) By mistake deduction of tax at source has been made at wrong rate/ lower rate/ due to omission in the calculation of surcharge/ education cess. While filing return of income, the employee pays the differential amount as Self Assessment Tax. Subsequently on TDS assessment, demand is raised on the employer for the same differential amount. Employer proposes to recover the said amount from the employee. Is the employer justified in doing so or is there any remedy available to the employee? (c ) If an employer has made excess deduction of tax at source in case of bulk return of an employee, what is the remedy available to the employee and under which section? (NB)