Tax Column

Tax Queries By Jayesh Dadia Chartered Accountant

I am an individual and in service with a corporate organisation. In FY 2021-22, I joined a MNC that paid me a joining bonus of ₹ 10 lakhs with the condition that I should work with them till March 2025. However, I resigned from the MNC and joined another company. As a result, I have to return the signing amount. Can I get any deduction while computing the salary income for FY 2023-24?
 

Any refund of salary or remuneration received in an earlier year cannot be allowed as deduction from the current year’s salary or remuneration although you have paid taxes earlier on the amount of ₹ 10 lakhs. Since salary is always taxable on accrual and receipt basis, the same cannot be allowed as deduction if the salary is returned back in a subsequent year.
 

I have been in employment with a big corporate organisation for almost 30 years. In the current year I have resigned and the employer is going to pay me ₹ 30 lakhs as leave salary, ₹ 50 lakhs as gratuity and ₹ 2 crore towards noncompete fees, besides regular salary and perks. Can you let me know the taxability of this one-time allowance in my hand?
 

Leave encashment is exempt up to ₹ 25 lakhs with effect from FY 2023-24 under Section 10 (10AA) of the Income Tax Act. Therefore, excess leave encashment of ₹ 5 lakhs is taxable. Gratuity received on retirement is exempt under Section 10 (10) (iii) of the Income Tax Act to the extent of an upper limit of ₹ 20 lakhs However, gratuity has to be computed by considering half month salary for each year of completed services, calculated on the basis of average salary for 10 months immediately preceding the month in which you resign. 

If by these calculations gratuity arrives at an amount lesser than ₹ 20 lakhs, then what is exempted is the lesser amount. The entire non-compete fees is taxable in your hand. No basic exemption is available. In fact, the company will deduct 10 per cent TDS under Section 194J of the Income Tax Act. Further, as I understand, gratuity is subject to RCM under the GST. Therefore, the company may recover the GST amount from you. All other salaries and perks are taxable at a normal rate.
 

Can you brief me about the taxability of monetary gifts received by an individual which are voluntary in nature?
 

Under the Income Tax Act, any gift received during the financial year whose aggregate value exceeds ₹ 50,000 is taxable. However, a gift received from a relative as defined in the Income Tax Act is exempt. Also, gifts received from charitable institutions which are approved under Section 12AA of the Income Tax Act are also exempt. A list of exempted gifts is available in Section 56 (2) (x) of the Income Tax Act. 

Gifts received on the occasion of marriage of an individual are not charged to taxation. Gifts received from a friend are also charged to taxation as they do not come under the category of relatives. Even gifts received from aboard from non-relatives are taxable. Gifts received of immovable property, without any consideration or inadequate consideration, are chargeable to taxation. In short, any amount received as gift from non-relative in aggregate of ₹ 50,000 is taxable. 

I am a non-resident both under the Income Tax Act and FEMA. Is foreign income earned by me abroad taxable in India? Does any remittance from abroad to my bank account in India become liable to taxation?
 

A non-resident in India is subject to tax only on his Indian income which accrues and arises in India. Also, income earned abroad is not taxable in India. Further, the amount transferred by a non-resident from abroad to his Indian bank account is also not subject to tax as the amount was earned outside India. However, you have to establish that income was earned outside India which has been sent to India out of your bank account abroad. Further, your foreign income which you have earned abroad and invested outside India is also not subject to taxation if you bring it back to India after you become a resident. Again, you have to establish, through documents, that the income was earned aboard when you were a nonresident.
 

I am an individual and own a residential building which is given on rent to various tenants. During the current financial year, some of the tenants have transferred their tenancy to new tenants who have paid part consideration to me as a landlord and part consideration to tenants who have vacated the premises. Further, I have also paid a certain amount to tenants for vacating and taking possession for my own use. What would be the tax implications?
 

The amount received by you from your tenants at the time of transfer of existing tenancy to a third party is taxable in your hand as income from other sources. In the hands of tenants who have transferred tenancy, the consideration will be taxed as capital gain as they have relinquished or transferred their tenancy rights, which is considered as capital asset. You as a landlord have not transferred any rights. Therefore, in your hand, it is taxed as income from other sources. As regards the amount paid by you to the existing tenants for vacating the premises and hand over the possession to you, it will be considered as part of the building cost. There will be no tax implication in your hand. However, when you sell the building, the same will be allowed as cost while computing the capital gain.