India Inc Can Now Claim Deduction for Covid Support

India Inc will be able to claim deduction on financial support provided to employees and their families for medical expenses or exgratia payments in the event of death due to Covid-19, a top government official said, “These can be claimed as a deduction,” the official said.

Experts, however, said a clear guideline on deduction may be needed to remove any ambiguity.

On Friday the government exempted recipients from taxation for financial help received from employers or other to meet Covid-19 treatment expenditures from financial year 2019-20 onwards.

Similariy, ex gratia payments made by the employer to the family members of the deceased employee shall also be fully exempt from tax in the hands of the recipients, though it has been capped at Rs.10 Lakh if received from other. The move relieves employers from the obligation of tax the absence of this clarification, amounts spent or reimbursed on medical treatment of Covid-19 could have been taxable as employment income in the hands of the employees and subject to withholding of tax.

The clarification was required on the issue of deduction to avoid litigation, experts said.

Industry bodies and tax practitioners had also highlighted the issue in representations to the government. Experts said a suitable clarification is also required to ensure that there is on challenge for employers in availing deduction in corporate tax returns on account of expenditure made for the medical treatment of family members of employees or for ex gratis payments made to the family members of deceased employees.

“Financial support provided by the employer for medical and other expenses will not be treated as income of the employees. By virtue of employer employees relationship, this should be covered within the broader meaning of salary and eligible as deduction for the employer. As a matter of abundant caution, a clarification may be issued that relief provided to the family of the deceased employees would also be allowed as a deduction for the employer to avoid any unnecessary disputes at later stage,” said Vikas Vasal, National Managing Partner Tax, Grant Thornton Bharat LLP.

During the second Covid-19 wave, several companies provided support for a single aspect or in combination, such as medicines, doctors’ consultations online, oxygen cylinders, interest-free loans or payment for isolation requirements such as hotel bills.

Many companies have also provided support to families, besides a lump sum such as free education for children, buying annuity plans, medical insurance for family and continued or years to the family of deceased employees.

“To avoid any ambiguity, it would be helpful if the government clarifies quickly on these aspects in the form of FAQS like it did for the deemed LTC scheme announced last year though changes in the legislation took place later,” said Kuldip Kumar, Partner, Price Water house& Co LLP.

This would not only provide certainty on tax-ability but avoid any possible interpretation issues and encourage corporate trying to help their employees and families in this difficult situation, Kumar said.  S-ET

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