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Sunday, August 26, 2001













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Standard deductions and income earned outside India

T. Banusekar

CLARIFY the quantum of standard deduction available under `salaries'. Also clarify the tax rates applicable to an individual for the assessment year 2002-03.

N. Thirumaleshwara Bhat

Reply

The standard deduction available for the assessment year 2002-03 is as given in Table 1.


Click here for Table

For instance, if the salary before deduction under Section 16 is Rs 1,50,600 and the tax on employment paid by the employee is Rs 1,000, the standard deduction would be the lower of 1/3rd of 1,49,600 (1,50,000-1,000) or Rs 30,000. As Rs 30,000 is lesser, that would be the quantum of standard deduction available.

The tax rates for an individual for the assessment year 2002-03 is as shown in Table 2.


Click here for Table

Query

I am a software engineer. After completing my studies in August 2000, I joined an Indian company in September 2000. After working for three months in India, I was transferred to Australia. Now, I am in the payroll of the company's Australian unit. The transfer is likely to be for one year, but subject to review at the end of the said period.

Now, I am in India on vacation and am planning to return to Australia after a few days. In Australia, I am getting a monthly salary after deduction of income-tax. I am likely to come back to India and join my parent company; this will be by the end of this financial year (2001-2002) or in the next financial year (2002-2003).

I would be obliged if you could advise me on the following points:

* What is my tax liability after return to India?

* How do I get the maximum tax benefit for my earnings abroad?

* What is my residential status after returning to India?

* How many days do I need to stay abroad, in a year, if I should qualify to be a Non-Resident?

* Any other relevant advice?

M. Kumar

Reply

An individual's residential status is to be determined in the following manner.

Basic conditions:

* He is in India in the previous year for a period aggregating in all to 182 days or more.

* Having been in India for a period of 365 days or more during four years preceding the previous year, he has been in India for 60 days or more during the previous year.

Exceptions to the second basic condition:

* In the case of an individual being an Indian citizen who leaves India in any previous year as a member of the crew of Indian ship as defined in the Merchant Shipping Act, 1958 or for the purpose of employment outside India, 60 days shall be substituted by 182 days.

* In the case of an individual being an Indian citizen or person of Indian origin who, being outside India, comes on a visit to India in any previous year, 60 days shall be substituted by 182 days.

Additional conditions:

* He has been an Indian resident for nine or more years, out of 10 years preceding the previous year.

* He has been in India for a minimum period of 730 days in seven years preceding the previous year.

Resident and ordinarily resident: An individual will be a resident and ordinarily resident in India if he satisfies one or both basic conditions and both additional conditions.

Resident but not ordinarily resident: The individual satisfies one or both of the basic conditions and one or none of the additional conditions.

Non-resident: An individual not satisfying any of the basic conditions will be a non-resident. It is not relevant whether or not he satisfies the additional conditions.

From the query it is not clear whether the reader is working in a separate Australian Company, which employs him or whether his Indian employer has merely deputed him to the Australian Company. At any rate since the reader has stayed in India for more than 182 days in the previous year and since he satisfies both the additional conditions, he would be Resident and Ordinarily Resident for the previous year 2000-01 (Assessment year 2001-02). This would mean the salary he earned in Australia would be taxable in India in accordance with Section 5 of the Income-Tax Act.

The reader may, therefore, enquire whether benefits are available under the Double Taxation Avoidance Agreement (DTAA) between India and Australia. Article 4 of the said DTAA treats a person as an Indian resident if the person is resident of India for tax purposes. It also excludes a person as not being a resident of Australia, if the person is liable to tax in Australia in respect only of income from sources in Australia.

The reader should be treated as an Indian resident for the purpose of the DTAA. Even if one were to go further into Article 4 of the DTAA, from the facts as stated by the reader, it appears that the reader would still be a resident of India in accordance with the DTAA.

Under Article 15 of the DTAA, salary derived by an Indian resident will be taxable in India unless the employment is exercised in Australia. The salary derived for employment exercised in Australia would be taxable only in Australia. The salary for services rendered in Australia shall be taxable in India if:

* The recipient is in Australia for a period not exceeding 183 days in the year.

* The remuneration is paid by or on behalf of an employer who is not a resident of Australia.

* The remuneration is not deductible in determining the taxable profits of a permanent establishment or a fixed base, which the employer has in Australia.

As the reader has stated that tax is paid in Australia in respect of his salary earned in Australia, it is presumed that the salary payment does not fall into the exceptions above stated. It will, therefore, follow that the salary cannot be taxed in India. In the conclusion, it may be said that by taking benefit of the DTAA, the salary earned in Australia will not be taxed in India.

After the reader's return to India, the income earned by him in India by way of salary for services rendered in India will be taxable in India, irrespective of his residential status.

Query

I had taken a housing loan of Rs 1.50 lakh in 1999 to construct a house. The construction was completed and the building was occupied in 2001. I claimed interest as a deduction under Section 24 and a rebate under Section 88 in respect of the principal repayment. I now propose to take another loan and construct another property. Can I claim a deduction under Section 24 for the interest on the fresh loan and also a rebate under Section 88 on the principal repayment of this loan?

M. M. Shivashettar

Reply

The question is whether a deduction can be claimed under Section 24 and a rebate under Section 88 in respect of more than one house property. There is no restriction on claiming such deduction and rebate. A deduction in respect of interest can be claimed under Section 24 against the income from house property only starting from the year in which the construction is completed.

The interest till the previous year preceding the previous year in which the construction was completed may be claimed as a deduction in five equal instalments, starting from the year the construction was completed. If there is any principal repayment made even before the completion of construction, the same will qualify for rebate under Section 88.

Query

I had taken a housing loan in two instalments one in September, 1998 and the other in January, 1999 for acquiring a flat. This apartment is let out since June, 1999. Can I claim the interest accrued on the housing loan as a deduction?

I had filed my income-tax return for the assessment year 2000-01 claiming a refund. Despite several reminders and e-mails I have still not received a refund. I seek your advice on the course of action to be taken.

K. V. Karthikeyan

Reply

The interest accrued on housing loan can be claimed as a deduction under Section 24 against the income from house property.

The reader's woe in regard to his refund is one that would be shared by many a tax-payer. The Department has continuously tried to improve its system of granting refunds. Several steps have been taken to expedite the same. Despite its efforts, there are several instances of refunds being delayed.

The reader is advised to write to the higher authorities who may expedite the issue of the refund. In the meanwhile, the assessee may also check whether there are any problems from his side that act as an impediment to the issue of refund, such as defective TDS certificates, and so on, and take steps to rectify the same.

(The author is a practising Chartered Accountant, Chennai.)

(Business Line invites queries on personal taxation issues to this column. They will be answered in the forthcoming issues of Business Line . Queries may be addressed to Tax Talk, Business Line, Kasturi Buildings, 859, Anna Salai, Chennai 600002, or by e-mail to vaidy@thehindu.co.in. (Readers are requested to mention `Tax Talk' in the subject line of their e-mails.

Related links:
Tax for income earned abroad
Income earned overseas
Taxability of foreign allowances


Section  : Personal Finance
Previous : Will tax cuts improve economic growth?
Next     : Interest rates on housing loans

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