Your Money: Tax exemption on Covid-19 treatment expenses paid by employer

Industry bodies have welcomed the government’s decision saying that the recent exemptions announced will provide some respite to many affected taxpayers.

By Vaibhav Kulkarni

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The second wave of the Covid-19 pandemic has been more devastating than the first wave, adversely impacting millions of individuals and adding to the stress on healthcare services. In this environment, most businesses have stepped up to provide financial and medical support to employees.

Medical help to employees
Due to the stretched resources and lack of options, an individual has to seek medical care, including monetary support, whether approved or unapproved from an income tax perspective. The critical concern for an employee is the tax consequences of such benefits received from the employer.

Employers are providing support in the following ways:
(a) Home care expenses like home ICU expenses, doctor consultation, etc.,
(b) Medical devices such as oxygen concentrator, ventilators, etc;
(c) Vaccines;
(d) Co-pay amount as part of medical insurance claim;
(e) Hospitalisation expenses not covered under the insurance policy
(f) Free meals provided to employees

These forms of Covid-19 assistance extended to employees will need evaluation based on the nature of assistance provided and how they fit within the realm of specific perquisite valuation rules or exemptions. Depending upon facts and circumstances, there is a need to evaluate taxability or non-taxability of above benefits and whether the expenditure incurred by the employer is out of business expediency.

Tax exemption
As many taxpayers have received various forms of financial help from employers as well as from other persons to help them to tide over this pandemic crisis, CBDT has now decided to provide income tax exemption to the amount received for medical treatment from employer or from the third-party for treatment of Covid-19 during FY 2019-20 and subsequent years. The exemption shall be allowed without any limit for the amount received from the employer and CBDT has specified that the necessary legislative amendments will be moved in due course.

The benefit of free food and beverages is considered as a taxable perquisite. Employers can also provide monetary assistance in case of death of employees—ex-gratia compensation to legal heirs—either by way of lumpsum payment or financial assistance provided for education of children. In order to provide relief to families of employees who have lost their lives due to Covid-19, CBDT has now decided to provide income tax exemption to ex-gratia payment received from the employer without any limit or from any other person to the extent of Rs 10 lakh on death of person in FY 2019-20 or subsequent years.

Industry bodies have welcomed the government’s decision saying that the recent exemptions announced will provide some respite to many affected taxpayers.

The effective cost of the tax relief would be nominal as the expenses incurred by the employees have/will result in additional taxable income of the service providers / manufacturers of healthcare equipment / pharmaceutical companies. While death and taxes are certain, this decision taken by the government will go a long way in alleviating the concerns of the taxpayers from a tax standpoint on the one hand and also as an immediate remedial step to ensure that the present moments are less difficult to bear.

The writer is tax director,
People Advisory Services, EY India. Views expressed are personal.