The Direct Taxes Code is sure to cheer salaried employees. To begin with, medical reimbursements of up to Rs 50,000 a year will be exempt from tax, as against the ceiling of Rs 15,000 at present. Tax practitioners said that the move will help salaried individuals meet the cost of some of the surgeries since the present limit was low and was mostly used up by consultation fees and cost of medicines.
In addition, income tax department said that leave travel allowance (LTA) will continue to get the same tax treatment that is available at present. So, in case an employee presents a bill, he or she will be able to claim tax breaks every alternate year. The norm is that an employee can claim two LTAs in a block of four years.
However, the way the same is presented in your tax return will change once the DTC becomes effective from April 2012. Instead of the present system, where it is completely exempted from tax, in the new regime LTA will form part of your total income but qualify for deduction. So, if your taxable income is, say, Rs 5 lakh, and the LTA component is Rs 40,000 a year, you will deduct it from your total income. At present, your total income would have been shown as Rs 4.6 lakh.
An official said that LTA will be notified in the rules under section 23 (1), clause c(ii).
While the change in tax rules for medical reimbursement is expected to result in some tweaking of the compensation packages at some of the companies.
That’s because, the government has proposed to introduce an allowance to meet personal expenses. While what would qualify to be included in this is unclear, employees may have another reason to seek a change in the way they compensation package is structured.
The bad news is that benefits on some of the non-monetary perquisite have been done away with.
Also, the additional Rs 20,000 exemption available to those who invest in infrastructure bonds is likely be limited to the current financial year only. “It is only available for this year and there is no mention of its continuation in the DTC Bill,” a tax expert said.
In case of bank fixed deposits, with a maturity of five years or more, the present deduction allowed under section 80C of the Income Tax Act will be dispensed with. At present, it is part of the overall investment ceiling of Rs 1 lakh where individuals can claim tax breaks.
As per the DTC Bill, "medical reimbursements of up to Rs.50,000 a year will be exempt from tax, as against the ceiling of Rs.15,000 at present." This is illogical, because the exemption depends on the policy of an employer in structuring the remuneration package in such a way or so as to include medical reimbursement. Therefore, irrespective of the fact whether employees are in receipt of medical allowance, or not, they should be allowed deduction up to Rs.50,000, in order that the provision is not discriminatory.
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In addition, income tax department said that leave travel allowance (LTA) will continue to get the same tax treatment that is available at present. So, in case an employee presents a bill, he or she will be able to claim tax breaks every alternate year. The norm is that an employee can claim two LTAs in a block of four years.
