Kindly clarify the exemption limits on transport allowance?

Muthukumar

According to the provisions of the Income Tax Act, 1961, and the prescribed rules, transport allowance granted to an employee by his employer (other than an employee who is visually or physically challenged) to meet the expenditure for the purpose of commuting between the place of residence and duty shall not be included in the total income of the employee up to ₹1,600 per month.

Earlier, this limit was ₹800 per month and has been enhanced from financial year 2015-16 to ₹1,600 per month.

Any allowance paid above this specified limit is fully taxable in the hands of the employee.

I was in Hong Kong from November 4, 2014 to October 2, 2015. From Noveber 4, 2014 to September 30, 2015, I was on a work permit visa and on October 1 and October 2, 2015, I was on tourist visa.

So, in AY 2016-17, I have been outside India for 185 days.

I received my salary from November 4, 2014 to September 30, 2015 in my Hong Kong bank account which I later transferred to India to my existing savings bank account (I didn’t open an NRI account).

So, in FY 2015-16 (AY 2016-17), under which category should I file my income tax return and am I liable to pay tax on this income here?

Kalpesh

According to the provisions of the Income Tax Act, the taxability of an individual is determined on the basis of his residential status in India during the relevant financial year (FY).

Following are the types of residential status and related incidences of taxation: Resident and Ordinary Resident (ROR) — taxable on global income in India; Resident but not ordinarily resident (RNOR) — taxable in India on income sourced from India, income received/deemed to be received in India and any income derived from a business controlled/profession set up in India; non-resident (NR) — taxable in India on income sourced from India and income received/deemed to be received in India.

Based on the limited facts, I understand that your stay in India during FY 2015-16 is more than 181 days and you were not staying outside India in the past, that is, prior to your Hong Kong assignment.

Assuming further that you returned to India after completing your Hong Kong assignment and you would continue to stay in India up till March 31, 2016, you would qualify as ROR during FY 2015-16.

Hence, you would be taxable on your worldwide income in India for FY 2015-16, including the income that you earned by rendering services in Hong Kong.

The provisions of the Income Tax Act will have to be analysed separately to determine if any benefit is available for the income that is taxed both in India and Hong Kong since there is no Double Taxation Avoidance Agreement between India and Hong Kong.

The writer is a practising chartered accountant. Send your queries to taxtalk@thehindu.co.in

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