Primer on getting tax relief on Covid-19 expenses, ex gratia

The amended provisions will apply from the assessment year 2020-21 and subsequent assessment years

The Union Budget 2022-23, in order to provide income tax relief, brought in due amendments to the Income Tax Law by amending the provisions relating to ‘Perquisites’ and charging head ‘Income from Other Sources’ to treat them as ‘not-a-perquisite’ and ‘not-an-income from other sources’ in the hands of the recipients subject to certain conditions.

Further, it has also amended the gift tax provisions to exclude such sum of money received by an individual, from any person, in respect of any expenditure actually incurred by him/her on his/her medical treatment for any family members for Covid-19 related illness. To ease the burden on the taxpayers, these amendments were also brought in retrospectively with effect from April 1, 2020. Thus, amended provisions will apply from the assessment year 2020-21 and subsequent assessment years. On August 5, 2022, the Central Board of Direct Taxes came out with a set of notifications on how to claim tax exemptions on these compensations, new Rules and Forms.

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Claiming exemptions as per new rule

To claim salary perquisites: An employee is required to submit to his employer the following reports: Covid-19 positive report of the employee or family member; documentary proof of medical treatment received by an employee or his family member for Covid-19 or related illness suffered within six months from the date of knowing it as ‘Positive’; certification in respect of all expenditures incurred to Covid-19 or other related illness of the employee or family member.

To claim medical expense reimbursement: An individual shall provide a set of following records: Covid-19 positive report of the individual or family member; documentary proof of medical treatment received by an employee or his family member for Covid-19 or related illness suffered within six months from the date of knowing it as ‘Positive’; Required to verify the prescribed Form No. 1, Statement of any amount received for any expenditure actually incurred by him or his family member caused by Covid-19 or related illness.
Details of such receipts got in any financial year in Form No. 1 are to be submitted to the tax department within nine months from the end of such tax year or December 31, 2022, whichever is later.

The prescribed Form No.1 requires the name, address, PAN, details of Covid 19 or related illness medical treatments including family member/s, the total expenditure incurred, the total amount received from any person, particulars of such person - name, address and PAN - from whom the amount received and the financial year received.

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To claim death exgratia: Death of the individual should be within six months from the date of testing positive, the family member of the individual shall provide/keep the following records - Covid-19 report or medical report of that individual; death certificate clearly stating the cause of death as ‘Covid-19’.

Additionally, a family member of a deceased person shall verify and furnish Form A, a statement of any amount received for any expenditure actually incurred by him / his family members. Details of such receipts received in any financial year in Form No. 1 is to be submitted to the tax department within nine months from the end of such tax year or December 31, 2022, whichever is later.

The prescribed Form A requires the name, address, PAN, relationship of the recipient with the deceased person, details of Covid-19 treatment including the reason for the death, a medical report or death certificate clearly stating the cause of death as ‘Covid-19’, the amount received from employer or any other person, particulars of employer/person – name, address, PAN - from whom the amount received and the financial year received.

How to claim

The aforesaid tax exemptions can be availed from the Financial Year 2019-20 or Assessment Year 2020-21 and subsequent years. Accordingly, taxpayers are still eligible to claim for the preceding two Assessment Years 2020-21 and 2021-22, if not already availed. Those taxpayers who failed to claim can do so by filing an ‘Updated Return’ for which the due date is 24 months from the end of the relevant assessment year.

If someone is yet to claim, a taxpayer can do so by filing his or her ‘Revised Return’ by on or before December 31, 2022. Those who are yet to file their ‘Belated Return’ can also avail the tax relief in a regular manner as provided therein.

Concluding remarks

Given India’s weak pension system, low yields from bank deposits and uncertainty in post-retirement job opportunities, it seems that the Union government is expecting its people to essentially fend for themselves. If it is true, what compels them to think so? As anticipated, the Supreme Court has come to the rescue of those pandemic-hit families, low though the quantum may be. To augment the revenue to increase the compensation and other benefits they promised, the Finance Minister should not hesitate to review her stand on reintroducing the erstwhile Inheritance Tax and Wealth Tax, at least for a limited period of five financial years starting from April 2023-24, if not perpetually.

(The writer is the Founder and chief executive officer of Shree Tax Chambers)