Tax Deduction On Work From Home Expenses

The year 2020 witnessed a once in a lifetime event. The COVID-19 pandemic has changed many aspects of life as we know today. Finance Minister Nirmala Sitharaman has expressed that Budget 2021, could be a "Budget like never before" as India would not have seen a Budget in 100-years after such a pandemic.

While the wishlist includes many sops, the following are expectations with strong cases from individual taxpayers' point of view.

Deductions on 'Work from Home' related expenses

Work From Home (WFH) has been adopted extensively by employers and employees. However, it requires employees to use high-speed broadband and have suitable office furniture to work comfortably. While certain expenses are reimbursed by employers, a whole host of costs are not. The government should exempt such WFH benefits provided by employers. Apart from the existing standard deductions, it needs to allow an additional deduction for employees incurring such expenses up to an overall amount of Rs 25,000.

Extension of time limit for deduction on home loan interest under Section 80EEA

Budget 2019 introduced Section 80EEA to provide a tax incentive for homebuyers under the government's affordable housing scheme. The provisions of the Section allowed a buyer an additional deduction on his first purchase. The extra relief was Rs 1.50 lakh per year on payment of home loan interest only if the loan was sanctioned between April 1, 2019, and March 31, 2020. It was extended to March 31, 2021, in the last Budget. With a large population still requiring homeownership support, it is expected that the timeline will again be extended for such loans to March 31, 2022.

Deductions on COVID-19 related medical expenses

Many Indians incurred substantial medical expenses on COVID-19 treatment. The current law does not allow any deduction for the income tax purposes on such expenses. The government may consider introducing a specific relief on costs incurred for such treatment and enable taxpayers to reduce their tax liability. 

Re-introduction of deduction on investment in long term infrastructure bonds

In the past, a tax deduction up to Rs 20,000 was available on investment in government-approved long-term infrastructure bonds issued by infrastructure companies. This was over and above the Section 80C limit. Such a deduction could be a win-win situation for both the government and taxpayers.  The government may consider re-introducing this deduction with a higher cap of Rs 50,000 a year to incentivise taxpayers to invest in the country's infrastructure.  

Clarity on taxation of accretions earned from employers' contributions to retirals

Budget 2020 introduced a cap targeted at high-salaried employees enjoying tax-free contributions to their Provident Fund and New Pension Scheme (NPS) accounts from their employers. The amendment stated that the employer's annual aggregate contribution to Employee Provident Fund (EPF), NPS and Superannuation Fund over Rs 7.5 lakh, would be considered perquisite. Also, yearly accretions on such excess contributions would be taxable in the hands of employees. However, there was no clarification on its method of calculation. There is no clarity on the fund selection process, taxation method or estimate of accretion if employee benefits exceed the government's cap. It is expected that the government provide more clarity on the issue.

The Central Board of Direct Taxes (CBDT) is expected to clarify residential status for individuals stranded in India due to travel restrictions. As per this clarification, such individuals may exclude a specified number of days spent in India in 2020-21 while determining their residential status for tax purposes. Further clarifications would be welcome on how such periods of involuntary stay in India would be considered by Indian authorities while reviewing short-stay exemption cases under the tax treaties signed by India.

It is expected that the upcoming Budget will focus on healthcare, employment generation and infrastructure, given that these sectors are vital for the recovery of different sectors of the economy. 

The author is a Partner with Deloitte India

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