“Discover key Indian tax rulings favoring salaried employees: exemptions, allowances, and deductions. Essential insights for optimizing tax liabilities!”
The Indian income tax system is known to be complex and challenging to navigate for many taxpayers. However, over the years, several income tax rulings/amendments have come in favor of salaried employees and small business owners. These rulings/amendments have provided clarity on various tax-related matters and helped taxpayers understand their tax liabilities better. In this article, we will discuss 10 such income tax rulings in India and their key takeaways.
1. Transport Allowance – In 2017, the Income Tax Appellate Tribunal (ITAT) Mumbai in the case of Salaried Employees & Officers of Hindustan Petroleum Corporation Ltd. v. ACIT [ITA No. 1344/Mum/2016], ruled that transport allowance received by employees is exempt up to Rs 1,600 per month. The key takeaway is that this exemption is in addition to the standard deduction of Rs 50,000 available to salaried employees.
2. House Rent Allowance – In 2018, the ITAT Mumbai in the case of ITO v. Ravi Taori [ITA No. 367/Mum/2017] ruled that employees can claim House Rent Allowance (HRA) exemption even if they own a house in another city. The key takeaway is that the employee needs to establish that he/she is paying rent for the accommodation occupied by him/her.
3. Medical Reimbursement – In 2016, the Delhi High Court in the case of Maxopp Investment Ltd. v. CIT [2016] 73 taxmann.com 387 (Delhi) ruled that medical reimbursement up to Rs 15,000 per annum is exempt from tax. The key takeaway is that medical reimbursement should be supported by valid bills and receipts.
4. Leave Travel Allowance – In 2018, the ITAT Mumbai in the case of ACIT v. Suresh N. Gupta [ITA No. 1929/Mum/2017], ruled that Leave Travel Allowance (LTA) exemption can be claimed for two journeys in a block of four years, even if the journeys are undertaken separately. The key takeaway is that LTA exemption is available only for travel within India.
5. Gratuity – In 2018, the Supreme Court in the case of Commissioner of Income Tax v. V. K. Bhalla [2018] 96 taxmann.com 290 (SC) ruled that gratuity received by an employee after five years of continuous service is exempt from tax. The key takeaway is that the exemption is available to both government and private sector employees.
6. Pension – In 2019, the ITAT Mumbai in the case of Mrs. Meher Noshir Vakil v. DCIT [ITA No. 6763/Mum/2018] ruled that commuted pension received by a government employee is exempt from tax. The key takeaway is that the exemption is available only to the extent of the commuted value of one-third of the pension.
7. Allowances for Uniform – In 2019, the ITAT Delhi in the case of Praveen Gupta v. ACIT [ITA No. 4176/Del/2017] ruled that allowances given for the purchase of uniforms are exempt from tax. The key takeaway is that the exemption is available only if the employer has prescribed a particular dress code.
8. Education Loan – In 2018, the ITAT Delhi in the case of Shalini Bindal v. ITO [ITA No. 4161/Del/2018] ruled that the interest paid on an education loan is eligible for deduction under Section 80E of the Income Tax Act. The key takeaway is that the loan should be taken for higher education of self, spouse, children, or any student for whom the taxpayer is a legal guardian.
9. Depreciation on Assets – In 2018, the ITAT Ahmedabad in the case of Sushila Ramniklal Mehta v. ITO [ITA No. 1916/Ahd/2017] ruled that depreciation can be claimed on assets owned by a partnership firm even if they are used by a proprietorship firm owned by one of the partners. The key takeaway is that the asset should be used for the business purposes of the partnership firm.
10. Capital Gains – In 2018, the ITAT Mumbai in the case of ITO v. M/s. Shreyas S. Morakhia [ITA No. 6871/Mum/2016] ruled that capital gains arising from the sale of a property should be considered as long-term capital gains if the holding period is more than 24 months, even if the sale deed is executed before the completion of 24 months. The key takeaway is that the holding period is crucial for determining the nature of capital gains.
These income tax rulings provide valuable insights into the taxation of various income sources and deductions available to taxpayers. It is essential for salaried employees and small business owners to understand these rulings and take advantage of the exemptions and deductions available to them!
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