Taxpayers can avail exemption on receipt of Covid-related aid citing SC’s ‘limitation’ order

Shishir Sinha New Delhi | Updated on June 27, 2021

Those with taxable income below threshold limit should file returns for getting the exemption, advise experts

The Supreme Court’s recent order extending the period of limitation on various laws till further orders in the wake of Covid-19 pandemic can prove useful for income tax payers who want to claim tax exemption on the financial aid for Covid-19 treatment or ex-gratia payment received by them during financial year 2019-20, say tax experts.

Clarifications are awaited from the Central Board of Direct Taxes (CBDT) on how this exemption can be availed, especially when the extended due date for filing return for FY19-20 is already over (May 31), they say.

Meanwhile, tax experts also advise that filing Income Tax Return (ITR) would be a good option to claim this exemption, even if one’s annual income has been less than the threshold for taxable income.

The Finance Ministry on Friday announced tax exemption for financial support received for treatment of Covid. Also, ex gratia given to the next of kin in case of death due to Covid will not attract income tax, subject to some conditions. These two exemptions will be available on payments received during FY20 (Assessment Year 2020-21) and subsequent years, the Finance Ministry has said.

Now, question has arisen on the implementation for FY 20 as the extended due date for filing ITR was December 30, 2020, and for revised return/belated return May 31. In response, a senior Finance Ministry official told BusinessLine that decisions will be moved through an amendment at a later date. Modalities of allowing the exemption will be worked out at that time.

Legal provisions

Sujit Bangar, Founder of, says: “As on date, there is not any option available for taxpayers to get benefit from Friday’s announcement of tax exemptions (for FY 20).”. However, Prateek Bansal, Associate Partner with law firm White and Brief says: “Supreme Court Order dated April 27, 2021 extending the period of limitation till further orders, is the law of the land and is binding on all courts / authorities as per Articles 141 & 142 of the Indian Constitution.”

The apex court, on April 27 restored the order dated March 23, 2020 and in continuation of the order dated March 8, 2021 directed that “the period(s) of limitation, as prescribed under any general or special laws in respect of all judicial or quasi-judicial proceedings, whether condonable or not, shall stand extended till further orders.” It clarified that period from March 14, 2021 till further orders shall also stand excluded in computing the periods for any law, which prescribe period(s) of limitation for instituting proceedings, outer limits (within which the court or tribunal can condone delay) and termination of proceedings.

According to Bansal, by virtue of this order, the person (who wishes to claim exemption qua Covid related financial receipts) may seek to file the revised return belatedly as a matter of right, and claim refund / set-off of additional tax paid for FY 2019-20. “Needless to mention that clarity is awaited as to how the legislative changes would be made to effectuate this retrospective benefit,” he said.

Another issue was that if the recipient of financial support is not the taxpayer and he/she has never filed the return, but amount received for treatment or ex gratia exceeds minimum taxable income, will he/she be required to file return for FY20 and subsequent years? Bangar advises it will be better to file the ITR and claim this amount in ‘other exempt income’ in ITR.

Bansal says the Government’s intention does not appear to expand the basic exemption limit on account of Covid receipts, but to exempt / deduct such amounts from the gross taxable income. Therefore, “while the final view can be formulated once the legislative changes pursuant to the press release have been made, basis the existing statutory provisions, it may be stated that the person receiving money for medical treatment or ex gratia would be required to file ITR if the said amount exceeds the basic exemption limit,” he said.

Published on June 26, 2021

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