Major Relief: GOI announces Tax Exemption on Financial Aid for COVID treatment, Ex-gratia

Further, any financial assistance or ex-gratia amount given to the family of a taxpayer who has died due to COVID-19 would also be included in the new reliefs announced by the Finance Ministry. Whereas the ex-gratia amount received by the family from the employer would be exempted from income-tax without any limit, exemption of Rs 10 lakh would be given to the family members if the financial aid comes from any other persons. These relaxations would be applied for the financial year of 2019-2020 and the subsequent years.

Indicating towards legal amendments for the above decisions, a statement from the Finance Ministry stated, "Necessary legislative amendments for the above decisions shall be proposed in due course of time."

The statement dated 25.06.2021 further mentioned, "Many taxpayers have received financial help from their employers and well-wishers for meeting their expenses incurred for treatment of Covid-19. In order to ensure that no income tax liability arises on this account, it has been decided to provide income-tax exemption to the amount received by a taxpayer for medical treatment from employer or from any person for treatment of Covid-19 during FY 2019-20 and subsequent years."

"Unfortunately, certain taxpayers have lost their life due to Covid-19. Employers and well-wishers of such taxpayers had extended financial assistance to their family members so that they could cope with the difficulties arisen due to the sudden loss of the earning member of their family. In order to provide relief to the family members of such taxpayer, it has been decided to provide income-tax exemption to ex-gratia payment received by family members of a person from the employer of such person or from other person on the death of the person on account 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 the exemption shall be limited to Rs. 10 lakh in aggregate for the amount received from any other persons" added the release by Department of Revenue Central Board of Direct Taxes.

Also Read: IT norms eased: Govt permits cash payment of over Rs 2 lakh for COVID-19 Treatment at hospitals

Apart from the exemptions, the release also mentioned several other reliefs including an extension in the time period of PAN-Aadhaar linking, furnishing Tax Deducted at Source (TDS) certificate, furnishing TDS statement for the last (January-March) quarter of the 2020-2, and the deadline for furnishing Equalisation Levy Statement etc.

Commenting on the measures, Nangia & Co LLP Partner Shailesh Kumar told PTI, this would give much needed tax relief to taxpayers, who have received monetary help from their employer, friends and extended families, either for treatment of COVID-19 or on account of death of a family member from the coronavirus infection.

"Though the relief is granted retrospectively from FY 2019-20 onwards, since the due date for filing ITR for FY 2019-20 has already expired, it would be important to see whether the Government revives the time limit for filing ITR for FY 2019-20," Kumar added.

The extension of various due dates, be it for PAN-Aadhaar linking, payment of tax/ penalty under Vivad se Vishwas scheme, completion of assessment proceedings, completion of penalty proceedings, registration of charitable trusts and institutions for income tax exemption etc, will provide additional time, both to taxpayers as well as tax authorities, he added.

The Times of India adds that Finance Minister Nirmala Sitharaman has mentioned how these two moves of exemption in the income-tax would benefit several taxpayers and their families who have received financial help as it will ensure that no income tax liability arises.

Speaking to the daily, Amit Maheshwari, tax partner at AKM Global said, "This is a welcome and much-needed relief. Taxpayers genuinely faced several difficulties whenever they were hospitalized or otherwise subject to rigorous medication. Covid treatment has also turned out to be a costly affair for a lot of people," adding that several tax professionals and individuals had petitioned for relief.

Kuldip Kumar, partner at consulting firm Price Waterhouse added in this context, "It will be useful if the government also clarifies if reimbursement for post-Covid complications, such as black fungus and other issues, is covered to avoid any difficulty to individuals."

He further mentioned that for those who have paid tax on reimbursement or ex gratia payments received during 2019-20, the Government may need to issue instructions as the deadline for filing returns, and revising them is over.

"Employers can heave a sigh of relief as in the absence of such clarification the said spending or reimbursement would have been taxable as employment income and employers were required to withhold tax on the same. From the clarification one would note that it is not only hospitalization, even treatment at home etc reimbursed by the employer or any other person should not be taxable," Kumar added.

Welcoming the decision of the Government to provide relief to those affected with COVID-19, Prateek Bansal, associate partner, White & Brief Advocates and Solicitors told News18, "The said amount of monetary help should correspondingly be allowed as deduction from the taxable income of the employers or such other persons. Further, since the exemption has only been allowed for medical treatment or death due to COVID, appropriate documents or records should be maintained by the taxpayers."