Finance Ministry has notified conditions for tax exemption of sums received for Covid-19 treatment or on demise due to pandemic. However experts are not sure on how to avail the benefits as due dates for filing revised returns for last two assessment years are already over.

The three notifications are follow-ups to amendments made in the Income Tax Act 1961 through Finance Act 2022. The amendments aim to fulfil announcements made by the government last June. The notifications are deemed to be effective from Apr 1, 2020 and apply to to the Assessment Year 2020-21 (AY21) and subsequent assessment years.

Last June, the Finance Ministry had said many taxpayers have received financial help from their employers and well-wishers for meeting their expenses incurred for treatment of Covid-19. In order to ensure that no income tax liability arises on this account, it was decided “to provide income-tax exemption to the amount received by a taxpayer for medical treatment from the employer or from any person for treatment of Covid-19 during FY 2019-20 and subsequent years.”

The Ministry also said that unfortunately, certain taxpayers have lost their life due to Covid-19. Employers and well-wishers of such taxpayers had extended financial assistance to their family members so that they could cope with the difficulties that arose due to the sudden loss of the earning member of their family. In order to provide relief to the family members of such taxpayers, it was decided to provide income-tax exemption to ex-gratia payment received by kinof the deceased from his/her employer or any other person. . “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 person,” the Ministry had said.

Now, experts are not sure how assesses will be able to get the exemption. Chartered accountant and former president of Institute of Chartered Accounts in India, Ved Jain, says income tax returns for assessment years 2020-21, 2021-21 and AY 2022-23 have already been filed and time to file revised returns for AY 2020-21 and AY 2021-22 has already expired.

“One wonders how a taxpayer would claim these exemptions if he/she has not claimed these exemptions in these assessment years but fulfils the prescribed conditions Also, it is unclear if any taxpayer has claimed such exemption but now finds that he doesn’t fulfill the conditions prescribed by these notifications, how the person is going to surrender the claim.  “It will be ideal that considering this anomaly, the CBDT issues a circular under section 119 permitting revision of tax returns already filed on this account,” he said.

Documentation issues

Sandeep Sehgal, Partner-Tax, AKM Global said that the time to file the revised and belated returns for AY 20-21 and AY 21-22 is already over. Though, the exemption was introduced in Finance Act, 2022 the conditions have been prescribed now, which also includes maintaining certain documents and filing certain forms. “The taxpayers who have taken exemptions may not have appropriate documentation asked for. They can withdraw the claim by filing an updated return but it will involve payment of additional penalty, which may not be justified in such cases. Some may not have claimed in the absence of availability of conditions to be fulfilled, hence a one-time opportunity should be provided so that taxpayers can revisit their returns and revise, if need be,” he said.