Covid-19: Higher tax benefits expected as employers extend helping hands to employees

The government is being requested to amend the provisions of the Income tax Act, 1961 to provide the relief to the honest taxpayers.

The Covid-19 pandemic has not only left scores of people jobless, but also hit the employers of many organisations – especially engaged in manufacturing and supply of essential commodities – as some Covid-infected employees have either succumbed to the pandemic or have remained absent from work for a long period.

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To ensure that they don’t lose their staff, many such organisations have extended helping hands to assist the affected employees.

“Many companies have come forward to support their employees in the ongoing pandemic period by way of bearing their medical expenditure, sending them medical kits at regular interval, arranging the vaccination or Covid-19 test camp at the workplace, etc,” said CA Geetanshu Bhalla, Mentor at The Virtual Compliance.

“However, such initiatives taken by the companies would have tax implication in the hands of employees,” said Bhalla.

So, the government is being requested to amend the provisions of the Income tax Act, 1961 to provide the relief to the honest taxpayers on the issues which triggers tax liability in the hands of employees by such initiative of the companies,” informed Bhalla.

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Bhalla lists some of the issues that triggers tax liability and the suggestions given to the government for relief:

Medical Treatment of Employees in any Hospital

Companies generally have the policy to bear the medical cost of its employees and of their family members. Such medical cost borne by the employers is tax-free in the hand of the employees provided such cost incurred either in the government hospital or hospitals approved by the government.

Considering the ongoing Covid pandemic where taxpayers do not have any option to select the hospital of their choice for medical treatment, the government should amend the aforesaid provision to allow the tax-free treatment on such medical cost irrespective of whether it is incurred in a hospital approved by the government, or not.

Medical Treatment of Covid-19 in Home Quarantine

Covid-19 data of India suggests that a large section of active Covid-19 patients undergo their medical treatment in home quarantine.

Medical expenditure incurred by the employer on the medical treatment of employees and any of their family members in home quarantine is taxable in the hands of employees. Such expenditure may include hotel charges, food charges, medical charges, cost of medicine, oxygen supply charges, etc.

In the light of the fact that patients in home quarantine also undergo the medical treatment under the supervision of medical practitioners and thus, home quarantine is the extended form of medical facilities. Hence, tax free treatment should be extended to such medical costs in alignment with the cost incurred in hospital.

Preventive Healthcare Expenses

Preventive healthcare measures including wearing the face mask, PPE kit, using sanitiser at regular intervals, consuming immunity-boosting edibles, self-quarantine if requires including at hotels, etc is the need of the Hour.

Although the income tax deduction is available for the medical cost, however, no deduction is available for meeting the cost of preventive healthcare measures.

Prevention is always better than cure. Accordingly, the government should introduce the income tax deduction on expenditures incurred on preventive health measures similar to a deduction on account of medical expenditure.

Health Kit

Many companies have started the distribution of health kits and other material to its employees to fight against Covid-19 Pandemic on regular intervals. The provision of the Act provides tax free treatment in the hands of employees on such kits only where the aggregate cost of all these in the financial year does not exceed Rs 5,000.

The government should extend the tax-free treatment of all such kits in the hand of employees irrespective of the amount involved.

Threshold Limit of Medical Expenditure

Many medical reports suggest that the medical treatment of Covid 19 warrants the supply of oxygen on continuous basis for a long period, intensive medical care, ventilator, costly life saving medicine, which generally cost in lakhs. Accordingly, the threshold limit of Rs 25,000 for normal citizens and Rs 50,000 for senior citizens provided for medical expenditure u/s 80D of the Act is quite inadequate.

The new income tax deduction on account of medical treatment of Covid-19 should be introduced under the Act without any threshold Limit.

Cash Medical Expenditure

Recently, the government has approved the payment of medical expenditure exceeding Rs 2 lakh in cash for Covid-19 patients. However, such relaxation is not made u/s 80D of the Act.

The mode of cash payment should be allowed for claiming the income tax deduction on account of medical expenditure incurred for Covid-19 patients.