TAX TALK-28.03.2011-THE HITAVADA

TAX TALKBY CA. NARESH JAKHOTIA(Chartered Accountant)
“DISCRIMINATION IN THE TAXATION OF LEAVE SALARY”
Query 1]
With reference to your Reply in the Hitavada dated February 14, 2011, you have provided Cost Inflation Indices up to F.Y. 2009-10, as a guide for calculating the Long Term Capital Gain. The CII for the current F.Y. 2010-11 is missing in the table. The Index for the F.Y. 20110-11 is required for calculating the Long Term Capital Gain/Loss on the transactions conducted in the current F.Y. The CII for the F.Y. 2010-11 is 711, as per my information. I would request you to kindly confirm the CII for the F. Y. 2010-11.
[shatekar@rediffmail.com]

Opinion:
Thanks for responding back. The Cost Inflation Index (CII) for the F.Y. 2010-11 was inadvertently missing in the Tax Talk dated 14.02.2011. You are absolutely correct, CII for F.Y. 2010-11 is “711”.

Query 2]
I have been transferred from Madhya Pradesh (MP) to Maharashtra (MS) in June-2010. I have updated my address in PAN to Maharashtra. This year, for F.Y. 2010-11, can I file my return in MS? Last Year I filed from MP (Bhopal). Please advise.
[s_c_swami@yahoo.com]

Opinion:
You can now file your income tax return for the current year from Maharashtra, even if the return in the last financial years were filed in Madhya Pradesh.

Query 3]
I have following query, kindly reply for the same
1. Is there any provision for investment to save the TDS over and above Rs. 1,00,000/-? (i.e., Rs. 20,000/- by way of investment in the long term infrastructure bond/RBI bonds etc)?

2. As per your reply earlier to my query, full Leave Encashment (PL/EL) (max 240 days) is exempt from TDS. However as per our department (Nationalized bank), PL/EL encashment is exempt under TDS is Rs. 3,00,000/- only and amount over and above Rs. 3,00,000/- is taxable as per the provisions of the law. Please elaborate the exemption provision for non Government employee? Only in case of central Government / State Government employees full amount is exempt. Why this discrepancy? Kindly guide.
[d_pande1@yahoo.in]

Opinion: -
1. An individual/HUF can claim deduction of Rs. 20,000/- by investing in the notified long term infrastructure bonds (NOT RBI Bonds as mentioned in the query). The deduction is admissible u/s 80CCF. It is over & above the deduction of Rs. 1 Lacs available u/s 80C. Investment in this bond will definitely help in saving tax (& also T.D.S by the employer).

2. Taxability of Leave Salary:

A] In the case of Central/ State Government employee, any amount received as cash equivalent of leave salary in respect of period of earned leave at his credit at the time of retirement/ superannuation is exempt from tax u/s 10(10AA)(i).

B] In the case of non Government employee (i.e., the employee other than an employee of the Central Government or a State Government) leave salary is exempt from the tax u/s 10(10AA) (ii) to the extent of the least of the following:

a. Cash equivalent of the leave salary in respect of the period of earned leave to the credit of an employee only a the time of retirement whether on superannuation or otherwise (earned leave entitlement cannot exceed 30 days for every year of actual service rendered for the employer from whose service he has retired): or

b. 10 month “Average Salary” (up to Assessment Year 1997-98, it was 8 months Average Salary): or

c. The amount not chargeable to tax as specified by the Government. (Presently, Rs. 3 Lacs has been specified).

d. Leave encashment actually received at the time of retirement.

Average salary, as mentioned above, is to be calculated on the basis of average salary during the period of 10 months immediately preceding the retirement/ superannuation.

”Salary” here means basic salary & includes dearness allowances if term of employment so provided. It also includes commission based on a fixed percentage of turnover achieved by an employee as per term of contract of employment but excludes all other allowances & perquisites.Exempt amount of leave salary as calculated above will not attract the T.D.S provision and the same can be paid without deducting tax at source (T.D.S).

We fully agree with you regarding the discrimination about the taxability of leave salary in the hands of Government employee vis a vis Non Government employee. But, certain things, howsoever unjust, are to be accepted the way it is.

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