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Taxing conveyance perks: Govt reworks modalities

Subhomoy Bhattacharjee

The government is working out the modalities for the treatment of conveyance allowance of private sector employees consequent to the withdrawal of exemption on perquisites like free passes for the Railways and airlines staff.

The issue has become a ticklish one for the finance ministry since the exemption is likely to be extended in the next fiscal too.

In fact, the issue united the unions with the officials in the rail ministry who made a joint bid with Railway Minister Nitish Kumar to restore the privilege.

This week's amendment to the rules of the Central Board of Direct Taxes has exempted the perquisite tax liability for these employees by amending Notification No. SO 940(E) of September 25, 2001.

The controversy can disturb the entire edifice of perks taxation which was introduced in the last Budget. The government had defined perks as any allowance that is an addition to the salary and forms a cost for the company.

Officials also said that when the government is moving towards corporatisation of both the Railways and the airlines, the exemption does not make sense.

It has only created a need to rework the perks rules that guide taxation of conveyance allowance, they added.

While the North Block has little time to work out the details before the Budget on February 28, an amendment in the course of the year now looks a distinct possibility.

To tax perks, the government has used the power under section 295 and sub-section 2C of section 192 of the I-T Act to bypass amending the Finance Bill repeatedly, and instead has made all relevant changes through the notification route.

In addition to the financial loss such an exemption causes, which sources said is likely to be in the range of Rs 5 billion, the ministry is worried that the same benefit can be asked for by anybody else who gets a conveyance allowance, whether in the private or public sector.

While several companies have a genuine claim that such allowances are partly for business travel, there is no extenuating purpose for rail and airline employees passes.

Government officials said the issue can be challenged in a court as a discrimination.

Tax experts also confirmed since the exemption has been given not only to the public sector Indian Airlines and Air-India but also to employees of private airlines, there is also not much justification in the government which claims it as a continuation of a historical privilege for only the former.

Incidentally, the railways do not include the cost of issuing these passes in their accounts which should be reflected in calculating their operations.

Without accounting for such costs, the entire set of passes should be seen even more as a freebie that comes with the salary and so should be taxed as a genuine perquisite, say tax analysts.

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