No rebate on notice pay recovery

I have resigned from my present job from a private company. According to the terms and conditions of service, a notice of three months is required. I have offered to pay in lieu of the notice period.  Please advise if I am entitled to deduction on this amount from my salary income. If not, under what provisions of I-T law?

My new employer whom I will join soon has agreed to reimburse the aforesaid amount on account of shortfall in notice period. Would this reimbursement form part of my salary income? Or can the above amount be treated as deductible from my salary from new employer? — Rajinder Kumar

a) The amount payable by you as notice pay recovery is not deductible against your salary income under any of the provisions of the Act. 

b) The amount paid by a new employer towards the reimbursement of notice pay would be a perquisite and taxable as part of your salary income.

c) The said amount is not allowable as deduction from the salary received from your new employer. 

I have received an interest-free loan exceeding Rs 50,000 from one of my friends. The Assessing Officer has issued a notice as to why it should not be brought to tax under Section 56 of the Act? What should be the course of action in this regard?  The ITAT had ruled in favour of the assessee and it was held in the said case that charge of interest need not be a pre-requisite in the case of a loan transaction.  Will an interest-free loan attract gift tax or not? — Rishi

You must be able to prove that the amount is in the nature of a loan by getting a confirmation from your friend. Your friend should be able to explain the source of the amount paid by him to you. There is an old ITAT ruling wherein it was held on the facts of the case that the provisions of Section 56 of the Income-tax Act 1961 (The Act) are not attracted in that case. It may be of some help to you. However, your endeavour should be to place evidence that the amount is really in the nature of a loan. Apart from confirmation, any amount refunded by you against the loan would be a piece of evidence to prove that the amount received was actually a loan.

I am working in a private office at a fixed salary of Rs 27,000 pm. I don’t  get any HRA. 

ii) I own a house but living in a rented accommodation in a nearby city and paying a rent of Rs 3,000 pm.

iii) The address on PAN card is of my own house. Should I change my address in PAN card data to where I am living on rent or not. Can I claim HRA deduction and 

how much?

What more deduction can be availed of to save tax? I don’t have any insurance policy. — Gulshan Kumar

(a) There is no need to change the address in PAN card data as PAN card must have been issued on the basis of your permanent address. 

(b) You cannot claim any deduction in respect of house rent allowance as you are not in receipt of such an allowance from your employer. You are, however, entitled to claim a deduction under Section 80 GG of the Act which is limited to 25% of the total income or Rs 2,000 per month whichever is less. Such deduction is allowable if the rent paid is in excess of 10% of your total income. A deduction under Section 80GG of the Act is allowable if you, your wife and children do not own accommodation at a place where you are in employment and/or carrying on your business or profession. 

(c) You should be entitled to claim the above deduction as the house owned by you is not located at the place where you are stationed for the purpose of your employment.

(d) The best way in your case to save tax would be to deposit your savings in a PPF account as the interest earned on such deposit is not taxable and as and when the amount is received on the closure of the account, the amount so received is also not taxable. You can also avail deduction for premium paid in respect of a life insurance policy on your life or on the life of your wife and two children. There are quite a few other schemes covered under Section 80C but the aforesaid schemes are preferred by the assessees. It may be added that the maximum permissible deduction for a financial year towards savings schemes is Rs 1,50,000.