Tax Column

I am an employer running a private limited company where 50 employees work. Some of the employees, i.e., manager and above levels, want part of their salaries in form of attire allowance and pursuit allowance. Whether these allowances, i.e., attire and pursuit, are exempt and if so, whether to be considered while working out TDS liability of the employee? [EasyDNNnews:PaidContentStart]

Both ‘attire’ allowance (uniform allowance) and ‘pursuit’ allowance (academic or research allowance) are eligible for Tax exemption under section 10(14)(1) of the Income Tax Act. However, the exemption is subject to certain conditions given in Rule 2BB of the Income Tax Rules. Under this Rule, an allowance granted to meet expenses incurred on purchase or maintenance of uniform for wear during the performance of official duty is exempt. Therefore, the pre-condition for availing the exemption is that attire (must be as uniform) is required to be worn by employees during the course of the duty. If an employee is required to wear a particular attire such as formal suit, blazer, or uniform, then the allowance given specifically for meeting the expenses on attire is exempt under section 10(14) of the Income Tax Act. However, the exemption limit is actual allowance received from the employer or actual amount spent by the employee, whichever is lower. You as an employer must take invoice or bill for actual amount spent by the employees. 

Similarly, any allowance paid to employees to encourage academic research and other professional pursuits, the same is also exempt under section 10(14)(1) of the Income Tax Act. Here also, the actual amount spent by an employee or actual amount paid by the employer, whichever is lower, is eligible for deduction. Here also, the employee has to provide all the details of his research and professional courses along with documentary evidence to establish that he has actually spent the amount for research related material or attending seminars or workshops, etc. 

However, kindly note that if an employee opts for new tax regime under section 115BAC, then these allowances are fully taxable as part of employees’ salary. Hence, the exemption is available only if an employee opts for old tax regime. 

In the financial year 2018-19, I approached one builder for purchase of a residential flat. The consideration was also finalised and I had also made part payment as requested and was allotted a residential flat vide allotment letter dated September 11, 2018. Subsequently, due to dispute between the builder and the authorities, Construction of the building was delayed and completed in the current financial year 2025-26, i.e., almost after 8 years. I have just finished the registration and taken the possession. The stamp duty valuation was calculated as per the current financial year ready reckoner rate, which is substantially high as compared to my agreed consideration in the financial year 2018-19. I am afraid that I may have to pay tax on the difference between the stamp duty valuation and the agreement value. Kindly advise and help. 

It is an admitted fact that you have been issued an allotment letter in the financial year 2018-19 itself when the agreement price was agreed. You have also complied with the other conditions of the allotment letter, i.e., adhoc payment. Therefore, legally you have purchased the flat and agreed the sale consideration in financial year 2018-19 and not in the financial year 2025-26. It has been held by various Tribunals and the Courts that an allotment letter constitutes an agreement for Section 56(2)(x) of the Income Tax Act. Therefore, the stamp duty valuation as on the allotment date must be considered for the purpose of Section 56(2)(x) of the Income Tax Act. 

Therefore, the relevant stamp duty valuation, in your case, is what is prevalent for financial year 2018-19 and not financial year 2025-26. Kindly determine the stamp duty valuation for f inancial year 2018-19 and if the said valuation is less than the agreed consideration, no addition under Section 56(2)(x) of the Income Tax Act can be made. The proviso to Section 56(2)(x) of the Income Tax Act also supports the above views. However, the CPC, while processing the return, may raise an issue and the difference between the stamp duty valuation and actual consideration may be taxed. However, you must approach the appellate authorities. You have a fair chance of succeeding. There are umpteen number of legal cases to support your case. 

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We would be happy to address your tax-related queries. Kindly share them with us at editorial@dsij.in
 

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