Ask Harsh Roongta anything on Personal Finance: Gratuity received from foreign employer is also tax-exempt

I am a salaried (married) person with more than Rs 10 lakh annual income that goes in the salary account. I have opened a joint account with my father in another bank. My father is a senior citizen, and he is the first holder. I have transferred Rs 15 lakh to the said joint account and opened an FD. The total income of my father, including the interest from the FD, is below Rs 3 lakh. My father has submitted form 15H, and hence, no tax has been deducted. Is it necessary for my father to file income tax returns?
– Shamal Sarfare

It is assumed that you have gifted the sum of Rs 15 lakh to your father. There are no clubbing provisions for a gift to father nor is any tax payable either by your father or yourself regarding this gift. If your father's total income chargeable to tax is less than Rs 3 lakh and he has no tax deducted at source then he is not required to file any income tax returns (unless he has exempt long-term capital gains on equity shares or has an interest in foreign assets). Please note though that any money gifted to your father will be subject to the normal laws of inheritance and all his heirs will have a stake in the amount if he dies without leaving a will. Just being a joint holder in the FD will only ensure that you get control of the amount on his death. You will still be accountable to his other heirs for this amount. There are many legitimate ways in which you can minimise the tax outgo and still keep the money in your own name. I would recommend you not to follow this tax planning exercise if the sole purpose is to save on tax on the FD interest.

I returned to India for good in July 2016 after a long stint in Sudan. From now on, I will be leading a retired life in India. I understand that I may have to pay tax in India on the salary income received in Sudan for April, May and June 2016. Is that correct? Also, as a part of my final settlement, my employers in Sudan have paid certain amounts as gratuity and towards encashment of leave entitlement. Can I claim exemption in respect of these items even though these amounts have been paid overseas by a foreign employer?
– Nitin Doshi

Section 10 (10) (iii) of the Income Tax Act 1961 deals with the exemption of gratuity received by an employee on his retirement. In my opinion, nowhere does it state that this gratuity is exempt only if received from an Indian employer. Hence, any gratuity received by you even from your foreign employer subject to the limits mentioned in that section (maximum Rs 10 lakh or 15 days of salary for each completed year of service – whichever is lower) can be claimed as exempt and not taxable. Similarly, section 10(10AA) (ii) deals with the exemption of leave encashment received on retirement. This too can be claimed to be exempt to the extent of the limits specified in that section (maximum Rs 3 lakh or ten months salary whichever is lower). If any tax has been paid in Sudan on the salary income then you may be able to claim credit for such tax paid in Sudan against your tax payable in India. Please consult a tax expert for advice specific to your situation and facts of your case.

Harsh Roongta is a chartered accountant and Sebi-registered investment expert. Send your queries – be it on mutual funds, tax, loans or savings – to personalfinance@dnaindia.net or tweet them to @AskHarshdna