MoF: Request for clarification that reimbursement of amount incurred by employee for COVID-19 treatment, or any other support provided by employer will not be treated as perquisite under the Income Tax Act, 1961

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MoF: Request for clarification that reimbursement of amount incurred by employee for COVID-19 treatment, or any other support provided by employer will not be treated as perquisite under the Income Tax Act, 1961

Tejasvi

@tejasvi

May 19, 2021

Public Policy

266

During this unprecedented time, COVID support/relief has been one of the topmost priorities of employers. For example, employers are coming forward and supporting their employees by providing the following facilities to employees and their family members:

Provision of oxygen concentrator/ oxygen cylinder for treatment;
Reimbursement for purchase of oxygen concentrator / oxygen cylinder;
Reimbursement of expenses incurred for COVID test, blood test, CT scan, etc. (including directly incurring such cost on behalf of employees);
Reimbursement of vaccination cost incurred by the employee at any hospitals / COVID care centres or provision of vaccination free of cost;
Reimbursement of medical expenses incurred during home isolation;
Reimbursement of medical expenses incurred on post COVID treatment;
Provision of interest free loans of any value to meet employee’s cash requirement for COVID treatment.*

Th is an apprehension that provision of medical support or reimbursements of above expenses by the employer on account of COVID-19 treatment of employees and their families could be classified as perquisite under S.17(2) of the Income Tax Act, 1961 (IT Act), making employee liable to pay tax on the same.**

COVID-19 related support to the employees and their family members by the employers needs to be treated as a humanitarian cause. Provision of above mentioned support to employees should not be viewed narrowly as a ‘benefit’ under the IT Act. There is a need exception in unforeseen situations such as the current pandemic.

Accordingly, we have requested Ministry of Finance to issue clarification that reimbursements given by employer to employee for COVID-19 treatment or any other support provided by them, will not be treated as perquisite under the IT Act. Such expenses should continue to be allowed as business expenditure for the employer under S. 37 of IT Act in the year in which it is incurred. To avoid misuse of this provision, government may mandate employer to obtain declaration from the employee that the expenses have been incurred for COVID-19 treatment.

This will provide clarity to the industry and help companies in providing necessary support to their employees, while being compliant with the IT Act.

We will keep you posted on further developments in this regard.

*As per clause 7(i) of Rule 3 of Income Tax Rules, 1962, interest free loans provided for medical treatment of employees/ families in respect of specified diseases prescribed in Rule 3A or petty loans less than INR 20,000 are not regarded as perquisite. Rule 3A inter-alia includes disease or ailment of the heart, blood, lymph glands, bone marrow, respiratory system, central nervous system, etc. requiring medical treatment in a hospital for at least 3 continuous days.

**As per the provisions of S.17(2) of the IT Act, the term “perquisite” refers to value of any benefit granted or provided free of cost or at concessional rate by an employer to an employee, including benefit in respect of medical treatment provided to employee.

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Tejasvi

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