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PP-ATLP-December2011
Answer 2(c) Tax lmplicationsof DividendDeclarationand issue
of Bonus shares:
The DomesticCompanyshallbe liableto pay addltionalincome tax on any amount declared,distributedor paid by such companyby way of dividend(whetherinterimor otherwise),whetherout of currentor accumuiatedprofits. Such additionalincometax siall be payable@15%plussurcharge@7.5"hpluseducation cess@2"/"andSHEC @1%' Therefore,the dividendreceive-d in the handsof shareholdersshailbe exempt. No tax liabilityariseson issueof Bonusshareseitherin the handsof companyor in the handsof shareholders. Question 3 An employee is going to join your company on annual CTC of T18,00,000. Prepare a remuneration ptan for him keeping in
view the following:
(i) He wants to minimise his tax liability within the tegal framework but take home salary shoutd not be less than tg takh" (ii) He does not own a house. (iii) He owns a car. But he can take another car from ffie company. (iv) He has two chirdren and one of them is in a boarding schoor. (v) His wife is emptoyed and she gets chitdren education ailowance. (vi) There is rp uniform code in your company. (15 marks) Answer3 (1) Tax Liability where whole salary is accepted in cash : First,tet,sassume that the employeegets {18,00,000as cash and no exemptedailowanceand deductionundersectionBOCto 80U is availableto him. Then his Tax Liability shallbe t4,0S,920.This is th . maximumliability on the emptoyee. (2) Jax liability where salary is divided into perquisites/altowancewhich are fully exempt : To minimisethetax liability sataryrn"ttn" dividedintoallowances/ perquisiteswhichare exempt.on the basisofihe given facts,the pay package shall be dividedas follows: (i) Emproyeedoes not own a house: In this case, there are two options.First is to give a Rent free furnishedhouse and second is to give House Rent Allowance.In the firstoption,the valueof rentfreefurnished houseshallbe taxable.And it willnothelphim in minimising thetax. Inthe secondoption, he can get exemptionof HRA as per section1o(j3A)to the minimumof actualHRA receivedor actualrent minus 10"/"of sataiy or 40"/"(in case of Non-metrocities)/SO% (in case of metrocities)of salary. In sucha situation,its betterto pay at least50% of salary as HRA assuming that he residesin Delhi and that the amountof actuat rent less 10o/o ol salaryis higherthan HRA received. (ii) Ownsa Car: As the employeealreadyowns a car so thereforeit has no use to give him anothercar as the valuationol car is fullytaxable. In that case he can be givenconveyanceailowanceas Tg00p.m which is exemptin his hands.