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TAXATION The who, what, where, and when of the new provisions. By Pradip N Kapasi
Since several changes have been brought about in the income-tax laws governing the LTA from fiscal 1998, I thought I should draw up a primer for you. Who? Any employee--resident or non-resident, citizen or non-citizen--is eligible to claim an exemption from income-tax in respect of the receipt of the LTA for himself and his/her spouse, children--dependent or independent, minor or major--as well as dependent parents, brothers, and sisters. On retirement, resignation, superannuation, or termination of services, this allowance is still exempt from income-tax. Where? From April 1, 1998, the tax-exemption is available on the LTA granted for travel to any place in the country and is not, as it used to be, restricted to home-district travel. However, no such tax-exemption will be granted for travel outside the country. When? A peculiar concept has been introduced to determine the year, or years, for which the tax-exemption is available. It will be conferred twice in a block of four calendar years, which is uniform for all employees and is not based on the year of his, or her, joining the company. The first such block ended in calendar 1989; the second, in 1993; and the third in 1997. We are now in the fourth block, which started on January 1, 1998, and will continue till December 31, 2001. An employee who has not exhausted the number of journeys available to him in any block can claim the tax-exemption in the first year of the next block in addition to that in respect of two more journeys in the new block. And a working couple can plan for a vacation together every year, and both can still claim the exemptions. How much? Under the Income Tax Act, 1961, the maximum passage-fare exemption: If the journey is performed by air on, or after, October 1, 1997 is the economy-class airfare of the national carrier by the shortest route. If the journey is performed by rail is the air-conditioned second-class railway fare upto September 30, 1997, and the air-conditioned first-class railway fare from October 1, 1997. If the journey is performed by any other mode to a place connected by rail is an amount equal to the air-conditioned second-class railway fare for journeys upto September 30, 1997, and the air-conditioned first-class railway fare from October 1, 1997. If the journey is performed by a mode of public transport to a place not connected by rail is the first-class or deluxe-class fare for that mode of transport. If the journey is performed by any mode to a place not connected by rail or public transport is the air-conditioned first-class railway fare for an equivalent distance. Moreover, the tax-exemption cannot, under any circumstances, exceed the amount actually incurred for the purpose of travel, and is restricted to the specified to-and-fro passage-fare for the travel of the specified persons. If the amount actually spent on travel is less than that prescribed, the exemption will only apply to the actual amount spent. Another change comes into force from October 2, 1998, whereby, in the case of children born on, or after, October 1, 1998, the tax-exemption will be restricted to the LTA for only two surviving children. And the two implications of this vaguely-worded provision, in my opinion, are: This restriction will not apply to the LTA granted and enjoyed upto October 1, 1998, as well as in respect of children born upto September 30, 1998. The tax-exemption in the case of children born after September 30, 1998, will be restricted to two children. However, in the case of multiple births--twins, triplets--it will not be restricted to two children. I believe that this amendment, which was intended to restrict the LTA in the case of children born after September 30, 1998, has gone beyond its intention, and has the effect of restricting the tax-exemption in respect of the LTA of children excluding the other members of the family. Since this cannot, certainly, be the intention of the Central Board of Direct Taxes, I think it would be appropriate for it to publish an amendment to put the issue beyond doubt. So, this summer, avail of your LTA, see the country--and save on your income-tax too. In arrangement with the Bombay Chartered Accountants' Society |
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This is no flight of fancy. You can now fly
off with your family to any destination in the country on your dream vacation, and still
avail of the tax-concession on the Leave Travel Allowance (LTA) that your employer grants
you. 