Any Allowance From Employer That Is Fully Spent Is Exempt From Taxation

I am an employee in a private hospital.  My salary is directly credited in the bank account. I also get some money in cash against vouchers as allowances. Can I show this cash allowance in my income tax return (ITR)? What is the tax treatment for this?

Answer: Any allowance given by the employer to an employee to meet expenses in the course of performance of his duty, to the extent it is spent, is fully exempt. 

So, the allowances received by you will be taxable to the extent the same have not been spent by you. 

It seems your employer has treated the allowances as fully spent and has not deducted any tax on it. Whether your employer has treated these allowances as taxable or not can be ascertained from the form no. 16 issued to you by the hospital. In case the same has not been included in the taxable salary, you do not have to do anything for it. 

However, if you have not spent the allowances fully, you have to offer the unspent portion for tax and include it in your salary income while filing your income tax return. For allowances not spent fully and represented by any tangible investment, you cannot claim any exemption. In such a situation, it is advisable that you pay taxes on it to avoid any complication in future.

I am working in a multinational company. My employer has duly deducted tax on my salary income. But I have been irregular in filing my income tax returns. Sometimes, I have not paid tax on my other income, such as interest income. What is the timeframe within which the income tax department can issue me notice and question me?

Answer: With the increased usage of computers and technology, and given that banks, mutual funds, credit card companies and other entities are also submitting annual information to the income tax department, the probability of any income not reported being detected by the income tax department is significantly high. 

Therefore, it is advisable that you include all such income in your income tax return. Coming to the other point that you have raised, the income tax department can issue you notice for the previous three years if the income that has escaped taxation is for three years, else it is for 10 years. In case any such income is detected, the income tax department can levy a penalty of 200 per cent of the tax on such undisclosed income. 

What is the tax implication when I do a systematic transfer plan (STP) from an existing liquid fund to an equity fund? Do I have to account for the tax gain in the liquid fund that is redeemed in that financial year, or does the tax become applicable only after I sell the equity mutual fund invested from the liquid fund? 

Answer: When units in the source scheme are redeemed for STP, the same is treated as transfer for the purpose of income tax, and you also have to disclose the profits comprised in the units of the source scheme redeemed for doing the STP during the year. 

Investments made in the target scheme are treated as separate investments and the profits in respect of source and target scheme have to be disclosed as and when the investments in respective schemes are redeemed.

The author is a tax and investment expert

(Disclaimer: Views expressed are the author’s own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.)