Investor Guidance
Provident fund dues tax-free
by AN Shanbhag

Q: My father retired from Punjab National Bank as Scale 1 officer on April 30, 2010, in Haryana and received following dues:

1. Gratuity - Rs 6,21,000

2. Leave encashment of 240 days: Rs 3,76,000

3. PF: Rs 10,00,000

4. Some amount was transferred into his PF account in the month of April as PF against the revised new scale (arrears for revised salary) & he retired in the end of April. Is this new PF amount taxable? Please advise from the above dues which amounts are taxable & to what extent.

— Nitin Jain

A: 1.Gratuity: U/s 10(10iii) in the case of employees to whom the Payment of Gratuity Act is not applicable, gratuity received by an employee on his retirement or on his becoming incapacitated prior to such retirement or on termination of his employment, the exempt amount would be the least of the following :

— Actual amount of gratuity.

— Half month’s salary for number of years of service calculated on the basis of average salary for the last 10 months.

— Rs 10,00,000. This limit was Rs 3,50,000 prior to Notification 43/2010 dt 11.6.10. This raised limit is applicable to the employees who retire or become incapacitated prior to such retirement or die or whose employment is terminated on or after 24.5.10.

Salary includes DA if the terms of employment so provide but excludes all other allowances, bonuses, commissions and perks.

2. Leave Encashment: Under Sec. 10(10AA) exemption is subject to the least of -

a) 10 months average salary (calculated on the basis of the salary during 10 months preceding the employees’ retirement on superannuation or otherwise). b) Earned leave standing to the credit of the employee. Earned leave cannot exceed 30 days for every year of actual service rendered for the employer from whose service he has retired. c) The amount of leave encashment actually received. d) Rs 3 lakh.

3. Provident Fund: This amount, new or old, is tax-free without any limit.

Ancestral assets

Q: I am a regular reader of The Tribune. I want to know whether an ancestral property can be sold individually by any person without any will, takseem or the consent of any other legal heir or heirs.

— Sunil, Ludhiana

A: An individual can sell any property (residential or commercial) belonging to him. If the property is held jointly by two or more persons, these persons can sell the property jointly. In other words, you are in a position to sell the ancestral property if the property has been transferred and registered in your name. From the query, it seems as if you have not yet got the property in your name. For that purpose, you will have to obtain a probate from a court of law which will require you to take no objection from all the heirs.

Gift to friend

Q: I have a NRI account with an Indian bank and I want to deposit a cheque in my friend’s local (non NRI) account in India. Will this amount be taxable to my friend? Does he need to show this amount as year-end earnings for income tax purpose?

— Mankani

A: Whether it will be treated as taxable income of your friend or not, will strictly depend upon the purpose for which you would be making the payment. If the payment is against any goods bought from him or services rendered by him to you, obviously your payment (less his cost) will be his income. However, if it is a gift from you to him and the amount is less than Rs. 50,000, the amount will not be taxed in his hands, unless he receives similar gifts from other sources and the total amount of gifts so received crosses the threshold of Rs 50,000.

Tax on gift

Q: At the outset I would like to tell you how impressed I am with your knowledge of tax matters and the nice way you explain the complex issues into easy to understand concepts. I would appreciate your clarification about an issue that you discussed in one of the past Q&A columns. If I understood you correctly an Indian resident may gift equivalent of $200,000 per financial year. Can this gift be made by an uncle to his niece & nephew who are Canadian citizens working in the US?

— Rob Keshav

A: We are glad that you find the column useful. Thank you for your appreciation. Regarding your query, Indian residents can gift/donate/ invest up to $200,000 per financial year (Apr-Mar) abroad.

Consequently, an uncle who is a resident of India can certainly gift any amount of money up to this limit to his niece and/or nephew.

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