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Sunday, Dec 25, 2005

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No exemption on LTA used for foreign tours

T. Banusekar

IF I go abroad on holiday and receive LTA will the allowance qualify for exemption under Section 10(5)?



The exemption under Section 10(5) will be available only for travel within India.

If the travel is outside India the exemption under Section 10(5) cannot be claimed.


In the light of the amendments to Section 43(5) and Section 73 by the Finance Act, 2005:

  • Will the profit or loss from trading in commodity exchange be treated as speculation income or as regular business income?

  • Can speculation loss of the financial year 2000-01 be carried forward for eight years or only four years?

  • Can the brought forward speculation loss from dealing in shares be set off against income from sale of derivatives in the financial year 2005-06?

    Vikram K. Khaitan


    The Finance Act, 2005 amended Section 43(5) to provide that trading in derivatives referred to in Section 2(aa) of the Securities Contracts Regulation Act, 1956, carried on in a recognised stock exchange will not be treated as a speculative transaction. This benefit will be available only if the transaction is carried on through a registered broker or a sub-broker or by banks or mutual funds and where the transaction is carried out electronically on screen-based systems and which is supported by a time stamp contract note which indicates the client identity and the number allotted under the SEBI Act or the SCR Act or the Depositories Act and also gives the permanent account number of the client.

    Section 73 was amended to provide that insofar as speculative losses are concerned the same can be carried forward and set off only within a period of four assessment years immediately succeeding the assessment year in which the loss was first computed as against eight assessment years which was earlier provided for in Section 73. Both these amendments are effective from assessment year 2006-07.As for dealing in commodity exchange, there is no amendment to Section 43(5) and therefore if there is no actual delivery, the dealing will be treated as a speculation business and the profit or loss will be charged to tax as speculative income or loss. The amendment to Section 73 would mean that even the earlier brought-forward losses can continue to be carried forward only for four assessment years immediately succeeding the assessment year in which it was first computed and if the four-year period has lapsed, cannot be carried forward further. In the light of the amendment to Section 43(5) if the dealing in derivatives is not treated as a speculative income, the brought forward speculative loss cannot be set off against such income. You may note that Section 73 specifically prohibits the set off of speculation loss against any income other than speculative income.


    I was working with one employer for the first six months of the previous year, 2004-05, and later changed my employment and worked with another employer for the other six months of 2004-05. I have not received Form 16 from my first employer where I worked for the first six months of the previous year. I have, however, received Form 16 from my employer with whom I am now working. I have, therefore, not been able to file my returns for 2004-05. What is the recourse available to me?



    Any person deducting tax at source is required to issue a TDS certificate and where the TDS is on salary the certificate is to be issued in Form 16. Form 16 is to be issued before the expiry of one month from the end of the previous year, that is, the same should have been issued to you before April 30,2005. Failure to furnish a certificate can invite the levy of penalty under Section 272A(2)(g) which can be Rs 100 for every day of default. Such penalty cannot exceed the amount of tax deductible at source. While this is so, the difficulty that has been caused to you by the earlier employer not issuing the Form 16 is one that will have to be faced by you. The only saving grace can be in the form of Section 205 of the Act, which prohibits an Assessing Officer, or any other authority from recovering tax from you if such sum has already been deducted at source. This would apply even if the payer, who has deducted tax, has not remitted the same into the government account. The onus will, however, lie on you to show that tax has been deducted at source on the salary paid to you by your former employer.


    Can I claim exemption on the hostel expenditure I spend on my child but which is not reimbursed by my employer, nor do I get an allowance?

    Vaishali Reply

    Section 10(14) read with Rule 2BB allows an exemption of Rs 300 per month per child subject to a maximum of two children, in respect of any allowance granted to an employee to meet the hostel expenditure of his children. If you are not in receipt of such allowance no exemption can be claimed even though expenditure is incurred on the hostel accommodation of your child.


    I have taken a housing loan to purchase a flat. The loan is in the name of my wife and I am a co-applicant. The property is also registered in the name of my wife. My wife pays the EMI. Can both of us claim tax benefits?

    Shajee P


    From the facts stated by you it is apparent that your wife is the owner of the property and that she is paying the EMI on the housing loan. It does not appear that you are joint owner of the property. In such circumstances it will not be possible for you to claim the tax benefits in respect of the EMI paid by you. It will be your wife who will be able to get the benefit in respect of the EMI paid by her.

    Mail your queries to or by post to `Tax Talk', Business Line, Kasturi Buildings, 859, Anna Salai, Chennai-600002.

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