JANUARY 21, 2017

By Ranjeet Ahluwalia

SECTION 10 (5) – Currently LTA exemption is granted only if an employee takes a leave for travel to any place in India. This is an age-old section and many employees now prefer to travel outside India on leave. It is requested to make an enabling provision in section 10(5) for covering foreign travel outside India also under ambit of exemption.

2) Section 10(13A)- Currently Section 10(13A) provides a HRA Exemption to those employees who are actually paying rent for their accommodation.  The exemption shall be extended to those employees who are living in the house of their parents and instead of paying any formal rent just contributing to family expenditure by paying part of their salary to the Elder of House. As in Indian Culture, Rent agreement between Son and Father is not considered good value, this category of employees face unnecessary bias in take home salary when they are compared with other employees who are actually living in rented house. An exemption may be granted to these types of employees who declared that the income of their parents from all sources together with contribution received from the employee does not exceed the threshold limit of Taxable income which is chargeable to tax. It means maximum exemption will be to extent of Rs. 2.5 Lakh only. This will help to promoting honesty and grace for Indian Salary taxpayers, mostly of which may be already taking this exemption by faking rent receipts.

3) Section 115-O – Currently all Companies distributing the dividends to its shareholders Need to pay Dividend Distribution tax and such dividends are exempt in hands of Recipient. This provision in Income Tax has a big impact in discouraging Foreign Investment into India. The reason is first the investee Company pay DDT which reduced the net returns of an investor and due to impact of various DTAA, the dividends are again taxable in their home Countries leading to double taxation and less returns to foreign investor. Following remedies are suggested:

A) DTAA shall be amended with various countries whereby Dividends become taxable in India rather then in home country from where the investment is made without changing the provision of Section 115-O;or

B) Section 115-0 is amended to provide for payment of DDT only on portion of Dividends which are payable to Resident Individuals, HUF, Firms and Corporates. The Dividend payable to foreign investors (may be only those who have substantial holding, say more then 5%) shall not attract DDT. This Dividend to foreign Company however attract TDS @ 15% so that there is no loss to Indian govt. and Investors can take credit of this withholding in their home country.

C) If none of the above possible, then DDT may be abolished for Private Limited Companies and instead withholding of 15% is introduced.

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