Refund of Income Tax for COVID 19 related expenses

COVID-19 is the biggest and worst pandemic seen by mankind. India is one of the worst effected countries by this pandemic. The government of India is trying all means and measures to make it possible for the country to stride through COVID-19. Government is giving medical facilities, economic aid and all other types of possible assistance to the public. During these testing times, people are coming forward to come help each other. Government has also announced refund of Income Tax for COVID-19 related expenses. Let us understand this move from government.

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Taxability of medical reimbursements

Employers and well-wishers of any individual are helping their near ones so that people can survive this pandemic. In case of salaried class employees, various employers are coming up with various schemes. Many employers are bearing the expenses of Covid treatment of their employees and their immediate family members. But what if this amount is taxable. Now, let’s see taxability of medical reimbursements:-

  • Salaried Class: There was a time when medical reimbursement made by employer up to Rs.15000/- was exempt from tax in the hands of employee. However, this provision got replaced with a standard deduction of Rs.50, 000/- from the salary. This implies that all the medical reimbursements received from the employer are taxable in hands of employee.
    This means that even though employer is trying to help his employees, but still employee had to pay tax on it.
  • Non-Salaried Class: Even in case where a person is receiving financial help from his family and friends, the receiver has to bear the tax. Although the gifts received from close relatives are exempt from tax. The gifts received from friends are taxable. In case the amount of gifts is more than Rs.50, 000/-, then the full amount received will be taxable.

Government’s announcement on Refund of Income Tax for COVID 19 related expenses

As per above discussion, we can see that even if a person is receiving any financial help from his near and dear ones he has to bear the burden of tax. Government understood this situation and came out with an announcement, to help people in this regard.

  • The amount received from any person by any individual for medical treatment is fully exempt.
  • Many taxpayers have lost their life due to COVID-19. People are coming forward to help the dependents of such people. Therefore, government has decided to exempt the amount of ex-gratia received up to Rs.10 lakhs received from people. Any amount received on account of ex-gratia from employer is fully exempt.
  • This relaxation is available for amounts received during FY 2019-20 and subsequent years. (Announcement dated 25.06.2021 by Ministry of Finance)

Practical Implication of announcement relating to COVID 19 related expenses

The impact of this announcement is as follows:-

  • The amount received for medical treatment should be received only for COVID-19 treatment.
  • The amount received in form of ex-gratia from well-wishers and friends is exempt to the extent of Rs.10 lakhs.
  • Any amount received from employer on account of ex-gratia is fully exempt from tax.
  • The main point to understand is that announcement is made in FY 20-21, and gives exemption for amount received in FY19-20 as well.
  • This implies that if any person received a sum in FY19-20, then also he should be able to claim exemption for that. Although the return for the FY19-20 is already filed. In that case also the person should be able to claim exemption. We need to wait for the proper guidelines in this regard as revision of return is also not possible in this case.
  • People claiming any exemption during FY 20-21 can do so by adding exemption under exemptions u/s10 tab of the ITR.
  • In the cases, if the taxpayer has paid tax on such receipts then he can claim refund for the same.
  • The revision of return is also possible for FY 20-21 if a taxpayer has already filed the return before this announcement.

Conclusion

In this article we discussed the announcement made by government for refund of Income Tax on COVID-19 related expenses. This main aim of this announcement is to ensure that any financial help to a COVID-19 impacted person should not be taxed. Now, what remains is that government should bring clear instructions for cases pertaining to FY 2019-20. Government has made sure to cover both medical treatment and ex-gratia in the announcement.

CategoryIncome Tax

CA Rishabh Maheshwari is an associate Chartered Accountant having expertise in conducting statutory and internal audits of large clients. He has also done a certified course on Concurrent audits of banks. He is responsible for coordination, planning, team leadership in connection with Audits and GST of Private and Public Companies with an experience of almost 3 years.

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