Budget 2022: Income Tax Relief on Covid-19 Treatment Expenses

Finance Minister Nirmala Sithraman presented the Union Budget 2022 on 1st February 2022. With several key issues being discussed, Budget 2022 has clarified that Compensation received by individuals from their employers for treatment of illness related to the Covid-19 pandemic will be exempt from tax. The relief will also be applicable for money received by an individual for the treatment of any of their family members. The present article briefs the Income-tax relief on Covid-19 treatment expenses and compensation. Click here to know more about Budget 2022 & Taxation Announcement

Gist of Announcement

In June last year, the government had announced that income tax shall not be charged on the amount received by a taxpayer for medical treatment from an employer or any person for treatment of Covid-19 during the Financial year 2020 and subsequent years. This relief has now been proposed to be incorporated in the income tax law. The Finance Bill, 2022, has amended Section 56 of the Income Tax Act to exclude the receipt of such payment from the employer from the definition of income from other sources.

Covid 19 related Income Tax Reliefs – CBDT Press Release

As mentioned above, Covid 19 related income tax reliefs announced by the government in June 2021 have been proposed to be notified by Budget 2022. These income tax reliefs were announced by the government in June 2021 via a press release. However, these proposed tax reliefs have not been notified i.e. enacted to date. For more details on the Press Release about Income Tax Exemption for Expenditure on Covid Treatment, click here

Income Tax relief on Covid-19 Treatment Expenses

Many taxpayers have received financial help from their employers and well-wishers for meeting their expenses incurred for treatment of Covid-19. To ensure that no income tax liability arises on this account, the Government has decided to provide an income-tax exemption to the amount received by a taxpayer for medical treatment from the employer or any person for treatment of Covid-19 during FY 2019-20 and subsequent years.

Income Tax Exemption for Ex-Gratia Received on Death due to Covid

As per the Budget 2022 announcement, income tax exemption was offered on the money received by the family members from the employer and/or well-wishers in case of death of the earning member of a family due to Covid-19. The income tax benefit is available from FY 2019-20 onwards, as per the announcement. To get this relief, the amount which is received by the family member in total should not exceed Rs 10 lakh and the person should have died due to the Covid-19 pandemic.

Budget 2022 Clarification on Income Tax Reliefs for Covid

Budget 2022 has clarified that money received by individuals either as one-time ex-gratia from an employer or for treatment of covid-19 will not be considered as income in their hands. Thus, individuals who have not mentioned the same at the time of filing their income tax return for FY 2019-20 or FY 2020-21, then need not worry. The money received is not considered as income and therefore no need to be informed in income tax relief.

Amendment in Section 17(2) of the Income Tax Act

The government has also formalized the earlier announcement that money received from an employer for their or their family member’s treatment for Covid-19 will not be considered a prerequisite. For this purpose, Section 17(2) of the Income Tax Act has been amended to exclude such benefits from being defined as a prerequisite. Perquisites mean benefits received by an employer above their salary/wage and include housing rent allowance, dearness allowance, etc. "To provide the relief as stated in the press statement, it is proposed to amend clause (2) of section 17 and to insert a new sub-clause in the proviso to state that any sum paid by the employer in respect of any expenditure incurred by the employee on his medical treatment or treatment of any member of his family in respect of any illness relating to COVID-19 subject to such conditions, as may be notified by the Central Government, shall not be forming part of prerequisite"

Amendment in Section 56 of the Income Tax Act

The Finance Bill, 2022, has amended Section 56 of the Income Tax Act to exclude the receipt of such payment from the employer from the definition of income from other sources. The second amendment to this section excludes money received from an employer by a family member of the deceased employee. "Finance Bill 2022 is proposed to amend the proviso to Clause (x) of sub-section (2) of section 56 and insert two new clauses in the proviso to provide that any sum of money received by an individual, from any person, in respect of any expenditure incurred by him on his medical treatment or treatment of any member of his family, in respect of any illness related to COVID-19 subject to such conditions, as may be notified by the Central Government in this behalf, shall not be the income of such person; ii) any sum of money received by a member of the family of a deceased person, from the employer of the deceased person (without limit), or from any other person or persons to the extent that such sum or aggregate of such sums does not exceed ten lakh rupees, where the cause of death of such person is illness relating to COVID-19 and the payment is, received within twelve months from the date of death of such person, and subject to such other conditions, as may be notified by the Central Government n this behalf, shall not be the income of such person. Further, it is proposed to provide that for both of the said clauses, “family” about an individual shall have the same meaning as assigned to in Explanation 1 to clause (5) of section 10. These amendments will take effect retrospectively from 1st April 2020 and will accordingly apply about the assessment year 2020-21 and subsequent assessment years."