In June .2021, it was announced that income-tax shall not be charged on the amount received by a taxpayer for medical treatment from employer or from any person for treatment of Covid-19 during FY 2019-20 and subsequent years. It was further announced that in order to provide relief to the family members of such taxpayer, income-tax exemption shall be provided to ex-gratia payment received by family members on the death of such person too.

Also, it was stated that the exemption shall be allowed without any limit for the amount received from the employer and the exemption shall be limited to ₹10 lakh in aggregate for the amount received from any other persons. However, this announcement was not given legislative effect. It hence brought in two dilemmas for tax ayers : one, according to Section 56 of the Income-tax Act, where any person receives any sum over R50,000 without consideration, it will be considered as his income (subject to certain exceptions). Besides, some payments by employers for employees are considered ‘perquisites’ under Section 17(2).

Budget provides clarity

The Budget has provided clarity on both. For one, it says that any sum of money received by an individual, from any person, in respect of any expenditure actually 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 government ) shall not be the income of such person.

Also, the Budget mentions that any sum received by a member of the family, from the employer of the deceased person (without limit), or from any other person to the extent of R10 lakh - where the cause of death of such person is illness relating to Covid-19 CO and the payment is received within twelve months from the date of death of such person, the sum shall not be the income of such person.

The improvement announced in the Budget over the June press release is that, the Budget has brought sums received for treatment of family members also into the ambit. Secondly, while the press release earlier mentioned only “treatment of Covid-19”, the Budget mentions “illnesses related to Covid-19”. Whether the ambit has been widened, one needs to wait and watch.

This provision is applicable retrospectively from April 1, 2020, and will accordingly apply in relation to the assessment year 2020-21 and subsequent assessment years.