Allow Income Tax Relief On Covid-19 Assistance To Employees: Bombay Chamber

The Income Tax Department head office in Mumbai. (Photograph: BloombergQuint)

Allow Income Tax Relief On Covid-19 Assistance To Employees: Bombay Chamber

The Bombay Chamber of Commerce and Industry has written to the Finance Ministry seeking tax relief on various forms of Covid-19 assistance received by employees and their immediate family members from their employers.

Most businesses have stepped up to provide financial and medical support to employees in light of strained public and private resources, BCCI has said in its representation. But monetary assistance and other Covid-19 relief support has resulted in an unintended tax burden on the employees under the income tax law, it said, adding that businesses are also unable to claim any tax deductions on such expenditure.

For instance;

Limited tax exemption is available only for employee medical insurance paid for by the employer - at a time when access to permitted hospitals is difficult. Home care is not covered.

If an employer extends monetary assistance to the employee, in the form of a loan, the notional interest is liable to tax in the hands of the employees.

If an employer provides medical equipment to the employee, 10% of the actual cost or rental cost of that equipment is taxable as income of the employee.

Any ex-gratia payment to the family of a deceased employee may also be liable to tax, especially if recurring.

Hence, the industry body has urged the Finance Ministry to exempt individuals and employees from the income tax levy on:

  • All direct payments or reimbursements made by the employer towards Covid-19 care-related expenses for the employees, including cost of vaccination.
  • Interest-free loans provided by the employer amid financial hardship during the pandemic.
  • Gifts in cash or kind provided by the employer to cover Covid-19 care related-expenses.
  • Medical equipment provided by the employer to employees and their family members.
  • Ex-gratia to legal heirs.
  • Monetary receipts exceeding Rs 50,000 received from employer as a relief for financial hardships caused by Covid-19.
  • Co-pay amount as part of medical insurance claim during Covid-19 hospitalisation.

The industry body also pushed for following amendments in the income tax law to grant relief to businesses:

CSR Shadow On Covid Expenses

Some businesses may have also provided larger communities with oxygen, medical equipment, protective gear, free meals, etc. This could get classified as corporate social responsibility spending, even if the company doesn’t fit the compulsory CSR criteria under company law. Expenses towards CSR are not tax deductible. BCCI has requested the government to allow any direct expenditure incurred towards combating the pandemic to be classified as CSR and receive full deduction for tax.

Welfare Trusts Tangle

Many employers are providing provide Covid-19 relief assistance by way of contributions to employee welfare trusts. These contributions are often disallowed under the guise of an anti-abuse provision in the income tax law.

The provision was inserted to curb the mala-fide practice by many employers who claim tax deduction by making contributions to employee welfare trusts and then route them back in form of loans or deposits. However, even genuine and bona-fide cases where the contributions are actually used for employee welfare purposes are being brought under the net of this provision.

Hence, the industry body recommends that a clarificatory circular be issued to say that contributions to employee welfare trusts actually spent towards employee welfare will not be disallowed under the income tax law.

These relaxations are crucial to reduce the tax burden on the employees and businesses alike and will go a long way in strengthening the commitment of the corporate sector to support the government in its fight against Covid-19, BCCI said.

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