Companies seek clarity as Covid-19 not in the prescribed tax relief diseases

Many companies during the second wave of a pandemic have come forward to help employees and their families financially. There are many companies which have announced schemes to help the families of their deceased employees, including health, education and jobs. But there is one issue that companies are grappling with is the clarity on the tax treatment for such expenses. This is because Covid-19 is not one of the prescribed diseases in the income tax rules.

Experts say there is ambiguity as these payments are taxable as perquisites or profit in lieu of salary in the hands of surviving employees or their families. Also, there is no clarity on whether companies need to withhold taxes. According to a report in The Economic Times, many associations plan to seek clarity from the finance ministry so that there is no additional tax on the Covid related financial help extended to the families of such employees.

Moreover, given the high cost of treatment and insurance hassles, many employers have reimbursed the expense of medical treatment of Covid-19 of their employees. But experts say this may attract taxes because, under the rules, such expenses are “perquisites or profits in lieu of salary.”

Shikha S S Walecha, a chartered accountant,  wrote in an article in TaxGuru, “Respiratory disease requiring surgical operations or medical treatment in a hospital for at least three continuous days shall be considered as prescribed diseases or ailment. Further, Covid-19 is a disease that affects the respiratory system. Therefore, the Covid-19 disease which requires surgical operations or medical treatment in a hospital for at least three continuous days shall be eligible to claim as prescribed diseases or ailment. Therefore, reimbursement for the medical treatment of the employee or any member of his family in these cases shall not be treated as a prerequisite for the employee.”