Income tax Applications – Some Specific aspects

Tax benefits on medical treatment provided by employer:

The following are our observations on tax exemption on medical reimbursements from one’s employer, and of its fringe benefit tax (FBT). First we take up exemptions incurred in India, and the exemptions on expenses abroad.

The first exempted expense in India is money spent on medical treatment for self (the employee) or a family member in a hospital maintained by the employer, or a hospital maintained by the government or a local authority. Or one approved for the medical treatment of government employees. Second, any payment made directly by the employer (or reimbursement to the employee for the same) to a hospital approved under income tax guidelines, treatment received by self or a family member, for certain ailments. Third, any premium an employer pays under a group medical insurance scheme for an employee and family members. Fourth, any premium an employer pays under the Mediclaim scheme, approved under Section 80D of the Income Tax Act. According to the Central Board of Direct Taxes (CBDT) circular on the subject, such expenditure is liable to FBT, unless it is statutory obligation. And fifth, any other expenses an employer pays for medical treatment received by an employee or a member of his family, up to a maximum of Rs 15,000 a year. According to the CBDT circular, the amount taxable in the employee’s hands is not liable to FBT. In other words, FBT is payable on amounts up to Rs 15,000. No FBT is payable on amounts above Rs 15,000 as the same is taxable in the hands of employees.

Now let us consider expenses incurred for medical treatment abroad. The following expenses, subject to limits which the CBDT may prescribe in accordance with Reserve bank of India guidelines in this regard, are not taxed as perquisites in the hands of the employees. First, medical treatment received aboard by an employee or a member of his/her family. Second travel expenses for the employee or the family member undergoing medical treatment plus one person who accompanies the patient in the case of employees whose gross total income before such expenditure does not exceed Rs 2 lakh. Third, the cost of stay aboard, for self or the family member concerned, for all categories of employees. Hospital refers to a clinic or nursing home. A medical allowance paid in lieu of reimbursement is taxable in the hands of the employee.

Buying a new flat and plan to sell old flat bought about 15 ears ago to raise the money. If there is a capital gain, what are the tax implications of this transaction?

An individual can claim exemption under Section 54 of the Income Tax Act. The requirements under this section are as follows. First, the income from the property being sold must be taxable under Income from house property either as self occupied or as let out. Second, the property must be a long term asset (in the above case it is a clear case since the property was held for more than 3 years). Third, the new property should be acquired within a year before, or two years after, the date of transfer of the old property. If the new property is to be built, construction should be completed within three years after the date of transfer of the old property. Fourth, the amount of exemption is the investment in the new flat or the amount of capital gain, whichever is less. Fifth, if the new house is transferred within three years of buying or building it, the exempted capital gains will be subject to tax in the year of transfer of the new house. Long term capital gain is exempt from tax, if the capital gain (not total sale proceeds) is invested for three years in bonds of the National Highways Authority of India or Rural Electrification Corporation Limited (Section 54 EC), up to Rs 50 lakh.

Tax implications of a Salary income:

Salary from an employer (or former employer) is subject to tax as follows. First, salary due during the previous year is taxable, whether received it or not. Second, if received a salary in the previous year, it’s taxable whether it was due or not. And third, arrears on salary paid or allowed in the previous year are taxable, provided they were not taxed earlier. Once salary is taxed on due / receipt basis, it cannot be taxed again on receipt / due basis, as the case may be.