Tax Rebate Likely On 3 Rail Passes

The Centre may allow railway employees to claim tax exemption for three railway passes annually. The decision means that over 90 per cent of the 1.54 million serving employees and 1.13 million pensioners will be exempted from paying any tax on their railway passes. The benefit is likely to be extended to airline employees also.

While the government has, so far, not earned any revenue from this source, a quick calculation suggests that the notional revenue foregone will be about Rs 1,000 crore annually. Of this, the railway largesse will mean a notional loss of Rs 700 crore for the government.

Before the budget, the government had exempted free and concessional tickets for airlines and railway employees from tax deduction under Section 192 of the Income-Tax Act for 2001-02. But since that was a one-time measure the two ministries had been debating the issue for settling the perks taxation law.

The railways allows its Group A and B officers six privilege passes in a year besides coupons for concessional fares. But, they are valid for different classes of journey. Employees at a lower scale can avail of three free passes, along with coupons for undertaking journeys at concessional rates. Retired railway employees also get two passes every fiscal.

Allowing three railway passes to be exempted from tax deduction at source for all grade of railway employees will mean that the overwhelming number of employees will go out of the tax bracket for perquisite taxation for their entire set of passes. The implications are the same for airline employees.

The Centre had also debated the possibility of denominating the quantum of tax exemption in monetary terms instead of the number of passes but that was given up as too cumbersome to calculate.

The perks taxation notification introduced last fiscal under Section 295 of the I-T Act says the value of perquisites provided by the employer directly or indirectly will be added to the income chargeable to the employees for computing tax liability.

It had expressly included personal or private journey free of cost or at concessional fare made available by the employer at the commercial cost of such fares.

Incidentally, if the cost of the passes were defrayed by the railways the sum would have been tax-free, but the railways have said the burden would have been too heavy for it to handle.

The budgets of railways and the public sector airlines do not include the cost of such passes as cost for the organisations concerned.