V B Prabhu Verlekar
Q. I am posted as a development commissioner in Mizoram. Here, I find that many local residents, including some who earn in crores do not pay any income tax nor file tax return, though I have to pay income tax on my salary and other income exceeding Rs 12 lakh. What is the reason?
Yeshwant Pednekar, Aizwal , Mizoram.
Under section 10 (26) of the Income-Tax Act, 1961, income of member of scheduled tribes as defined under clause (25) of Article 366 of the Constitution residing in Arunachal Pradesh, Manipur, Mizoram, Nagaland or Tripura which accrues to him from any source in these areas or by way of dividends or interest on securities is completely exempt from income tax. However, this exemption is not available to all residents of Mizoram. It applies only to individuals who are schedule tribe, are resident in the specified area, and whose income arises from a source within that area. Such income including salary, business or professional income, rent, and certain investment income earned within the specified area qualify for exemption.
As a government officer who does not satisfy these conditions, your salary is taxable under the normal provisions of the IT Act. Likewise, even a scheduled tribe member is liable to pay tax on income earned from sources outside the specified area.
Q. My friend is contesting ensuing Goa elections. To get guaranteed winning seat he has to give Rs 3 crore in cash to the office bearers of a political party. This he will do by converting his white tax declared money in fixed deposits into cash showing as personal expenses, without leaving any trail. Is there any law in income tax act to penalise or tax unexplained withdrawals by converting white money into black unlike black money into white under section 68 or 69?
Rohidas Putu Desai, Cuncolim.
No. If the money is already tax-paid and fully disclosed, merely withdrawing bank fixed deposits and spending it in cash irrespective of amount does not, by itself, attract any specific provision in the IT Act that taxes or penalises the act of converting “white money into black money.” The IT Act primarily targets unexplained income, investments, money, expenditure or cash credits under provisions such as Sections 68, 69, 69A, 69B and 69C, where the source of funds is not satisfactorily explained. However, this does not mean such a transaction is legally risk-free. If the cash payment is later detected, the authorities may examine whether any other law has been violated for example, election law, anti-corruption law, anti-money-laundering law, or whether there has been any false accounting, concealment, or misreporting. But possibility of detection is as good as nil. So good luck to you!
Q. I am a Canadian citizen of Indian origin holding an OCI card. My father, a resident of Goa, recently passed away leaving behind immovable properties and bank fixed deposits worth over Rs 5 crore. As his legal heir, am I liable to pay inheritance tax or any other tax in India? What are the tax implications on inherited assets, bank deposits, future income, and repatriation of funds to Canada?
Saby Xavier Carvalho, Toronto, Canada.
India does not levy any inheritance tax or estate duty, as the Estate Duty Act was abolished with effect from March 16 1985. Further, under Section 56(2)(x) of the IT Act, 1961, property or money received under a will or by inheritance is specifically exempt from tax. Therefore, neither the inherited immovable properties nor the bank fixed deposits are taxable merely because you inherit them. However, income earned after inheritance is taxable. Interest on inherited fixed deposits is taxable in your hands. As an OCI holder residing abroad, such deposits should held in an NRO account, and banks deduct TDS @ 30% under the Income-tax Act. You can claim credit or a refund by filing an Indian income-tax return, if applicable. If you later sell the inherited property, capital gains tax will
apply. Under Section 49(1), the previous owner’s cost is deemed to be your cost, and the holding period of the deceased is also considered for determining the nature of the capital gain. After complying with tax requirements, the inherited funds can be repatriated to Canada, without any limits subject documentation.
Q. I am a renowned oncologist invited by a multinational medical equipment company to deliver a keynote lecture at its annual conference in Singapore. The company will bear the entire cost of my business-class airfare, five-star hotel stay, conference registration, sightseeing, and even the travel expenses of my spouse. It will also sponsor a four-day luxury cruise after the conference. Since I am not paying anything from my pocket, will this sponsored trip attract income tax? How should it be reported in my return of income?
Dr. George D’Lima, Bandra, Mumbai.
Yes. The sponsored foreign trip is generally taxable. The expenditure incurred by the company on your travel, accommodation, sightseeing, cruise, conference, and your spouse’s expenses represents a
benefit or perquisite arising from your profession. Under Section 28(iv) of the IT Act, 1961, the value of such benefits is taxable as profits and gains of profession. Further, Section 194R may require the company to deduct TDS on such benefits before providing them, subject to the prescribed conditions and thresholds. The amount spent by the sponsor should be offered to tax as professional
income in your return. The spouse’s travel and leisure components are especially difficult to justify as business expenditure and are ordinarily taxable. This position is also consistent with CBDT Circular No. 5/2012 dtd August 1, 2012, which discourages tax-free acceptance of such promotional benefits by medical professionals.
The writer is well established, senior practicing chartered accountant with wide experience in taxation and finance. He is also a strategist in turn round management of institutions.
