Your Taxes

I am working as a manager in a public sector bank. We are reimbursed 50 litres of petrol for conveyance per month. It is not part of the salary? Can we claim exemption from tax on this transport allowance?

K B Prasad

Transport allowance to the extent of ₹1,600 is exempt per month. In your case, I understand that the bank provides this benefit in kind and not in the form of an allowance. Hence, this cannot be claimed as exempt by treating it as transport allowance.

Taxation of fuel reimbursement would depend on who owns or hires the vehicle (you or the bank) and the purpose for which it is used. If you use the vehicle exclusively for official purposes and the employer reimburses the running and maintenance expenses, then the entire fuel reimbursement would be tax-free. On the other hand, if it cannot be established that the consumption of petrol is exclusively for official purpose, then a value as determined based on the rules will have to be included as a taxable perquisite. Further, the taxable value of the perk will vary based on whether you own the vehicle or the bank owns it.

I have invested in five mutual funds under the monthly Systematic Investment Plan for five years. The five-year term will be completed in March 2018 and the yield is expected to be around ₹2 lakh. What is the tax implication on redemption of the funds — both principal amount and gains? Is there any exemption on the gains if I have invested in ELSS schemes for tax savings?

B Rama Rao

Taxation of capital gains depend on the nature of the mutual fund and the period of holding the investments. A mutual fund plan can be an equity-based fund or a debt-based fund. A mutual fund is considered as equity-based fund from a tax view point only when more than 65 per cent of the total portfolio of the fund is invested in equities.

In equity-based funds (which are subjected to Securities Transaction Tax), investments held for a period of 12 months or more is classified as long term and other investments as short term. Typically, in the five-year term of your investment, monthly investment in the initial four years before redemption would be in the nature of long term and the investment in the last 12 months would be in the nature of short term. While gain from long-term investment (‘LTCG’) is exempt, gain from short-term investment (‘STCG’) is taxed at 15 per cent.

In a debt-based funds, the minimum period of holding for an investment to be considered as long term is 36 months. LTCG for such investment is taxed at 20 per cent with indexation benefit, where the cost of acquisition is adjusted for inflation (or at 10 per cent without indexation benefit) and STCG is taxed at the marginal rate of tax.

There is no specific tax deduction for investment in ELSS out of the proceeds of SIP maturity. However, the amount invested in ELSS during the year is eligible for deduction under Section 80C of the Income Tax Act, 1961, subject to an overall ceiling of ₹150,000.

The writer is Partner, Deloitte Haskins & Sells LLP. Send your queries to taxtalk@thehindu.co.in

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