|
ECONOMY: INCOME TAX
No Perking
With the budget threatening to
make perquisites taxable, the days of padded pay packets seem to be over
By Sumit Mitra
The
salaried class in India is having palpitations ever since Finance Minister
Yashwant Sinha, in his budget speech, included a short paragraph on the
subject of "perquisites"-the jam which, on being spread over
the wages, makes corporate jobs attractive. "To align our tax system
with the present structure of pay packages," Sinha said, "I
propose that the value of perquisites, benefits or amenities shall be
determined on the basis of their cost to the employer, except in respect
of houses and cars where different criteria will be adopted for simplicity."
The palpitations bordered on a cardiac condition
as the Finance Bill sought fundamental amendments to section 17(2) of
the Income-Tax Act 1961, defining "perquisites" and seeking
to revise the limits of taxing these. The other objective of the amendment
is to bring under the tax net the signing-on payments prior to appointment,
common to jobs with multinational companies. Till now, the signing-on
amounts are omitted from income on the ground that such payments are made
when an employer-employee relation doesn't exist.
However, the proposal to revise the taxes on
perquisites could well spell the end of a long era of tax-free remunerations,
and the accompanying creative accounting of expenses. In the recent past,
for example, the Indian arm of a US investment bank hired a high-profile
chief executive on an annual pay packet of Rs 1 crore, only a quarter
of which is paid in cheque, the rest being in perquisites and allowances.
A new entrant into the insurance sector has gathered half a dozen top
executives from the public sector with signing-on payments as high as
Rs 10 lakh. A mobile telephone operator is offering "basket allowance"
to employees from rival firms, giving them the choice to divide the cash
part of their perquisites under any heads they like.
Will such excesses become history at the stroke
of a pen? With the income-tax rules for 2001-2002, specifying the rates
of taxation under different heads of income, not likely to be published
before April, tax consultants are still speculating. They fear though
that chances of perquisites remaining tax-free are slim. The official
view is quite stern. "We shall not touch allowances as long as they
are incurred for official purposes," says Central Board of Direct
Taxes Chairman A. Balasubramanian, "but camouflaged expenses should
come under tax." He confirmed that following changes in evaluation
rules of perquisites, their tax-free components will shrink.
According to tax experts, the changes will come
under the following heads of income.
# Signing-on payments: from nil tax obligation,
these payments will now be fully taxable.
 |
|
| Finance
Minister Yashwant Sinha is determined to tap hidden income of senior
executives. |
|
# watchman/sweeper/gardener/servant allowance:
presently, only Rs 120 per month is taxed for each watchman, etc. The
entire amount may come under tax.
# Gas/electricity/water charges allowance: it
is tax free with no limit, but 6.25 per cent is added to salary for tax
purposes in lieu of this benefit. The perk seems destined to become taxable.
# Interest subsidy and interest-free loan: the
Government is unlikely to tamper with interest-free loans because of a
Supreme Court order. However, all loans paid to employees, be it for housing
or buying cars, below the notified rate (10 per cent as of now) may be
taxed to the extent of the interest subsidy.
# Rent-free accommodation: the existing rule
entitles an employee to rent-free accommodation leased by employer with
tax charged on 10 per cent of his basic salary, or the excess of rent
over 60 per cent of the basic pay, or the allowance drawn for rent, whichever
is the least. It is expected that this perquisite will now be evaluated
on a single basis. If it is evaluated as a share of the basic salary,
the share is likely to be doubled to 20 per cent.
# Company-owned car: presently only Rs 600 per
month is added to taxable salary for each car if the engine capacity of
the car is not over 1.88 litre. The value may be trebled.
# Driver's salary: the Rs 300 per month taxed
for driver's salary is likely to be doubled.
However, opinions differ sharply on whether
the new income-tax rules will touch upon the reimbursement for costs incurred
in connection with work-like conveyance or uniform. Delhi-based tax consultant
Subhash Lakhotia says these are unlikely to fall under costs to the employer
as Section 10(14) of the Act, defining expenses incurred in course of
duty, has remained untouched. Nevertheless, T.N. Manoharan, vice-chairman
of the Fiscal Laws Committee of the Institute of Chartered Accountants
of India argues that the intention of the Government, as evident from
the Finance Bill, is to bring about "structural changes" in
the salary pattern by redefining, if necessary, some of the permissible
reimbursements as taxable perquisites.
Even assuming that allowances are left untouched,
the budget has triggered a new thinking on the gamut of tax-free handouts
that go with many job contracts. The cheque:cash ratio of emoluments is
often 50:50, and is even more skewed in some sectors, notably information
technology. The cash component may still rule high because there is no
signal yet that the Government is going to tax reimbursements. Till now,
the verification of the genuineness of these "yellow slips"-as
the debit notes casually raised by employees are sceptically labelled
by tax consultants-is a matter of discretion of the tax authorities. It
is challenged, if at all, on a random basis.
The Income-Tax Department doesn't have the resources
to check out every restaurant bill or every air ticket claimed as expense.
The expense-account culture may be curbed only after strict limits are
put on reimbursements, thus making compliance irrespective of policing.
The Government has nonetheless planted its flag on the so-called high-wage
island.
|
METRO TODAY
Web
Exclusives