The two waves of the dreaded COVID-19 pandemic took a heavy toll on many of our lives. Some of us may even have lost our friends and relatives.
Though no human loss cannot be compensated adequately, employers or near and dear ones may have preferred to give sums of money to reimburse the costs of treatment or handed a solatium to the families of the deceased.
Now, the income tax department has come out with a set of notifications on how such compensations are to be disclosed and tax liability on receipts.
What is the notification about?
Since the CBDT (Central Board of Direct Taxes) has come out with these regulations after the deadline for filing regular IT returns have elapsed, the department has now asked beneficiaries of COVID-19 compensation from employers or relatives and asked them to file a form A.
Now, all amounts received by the surviving members from the employer of a deceased person are completely tax-free.
But any money received from relatives or other persons has a limit of ₹10 lakh in terms of tax-free treatment. Any amount in excess of this limit is fully taxable.
These amounts must have been given within six months of a person dying after testing positive for COVID-19. And the compensation must be only for COVID-related treatment expenditure or death and not for any other disbursal.
All such disclosures of money received must be made by the beneficiary within nine months of the respective financial year or December 31, 2022, whichever is later. So, for financial year 2021-22, the deadline would be December 31, 2022.
These notifications take effect from April 2020. The form A is to be submitted to the respective assessing officer.
The disclosures that CBDT wants
The form A has 14 rows to be filled. The details include the PAN number of the beneficiary, the details of the payment made by the employer or other persons, date of COVID-19 diagnosis, date of death, serial numbers of the test and medical reports from the hospital, among others.
Any amount received in the previous year, related to COVID-19, must also be disclosed in the form.
Documents that you should keep handy
The CBDT asks you to keep several documents ready in case it asks you for clarifications at a later date.
So, some of the documents that you must have with you are as follows:
- The test report that states that the person tested positive for COVID-19
- All medical reports relating to the in-patient in admission in hospitals, medical treatment, doctor’s investigations, any discharge certificates and so on
- Bills of all expenses incurred for the treatment of COVID-19, on hospitalisation, medicines etc.
- Details of the compensation offered by the organisation in which the deceased person worked
- The death certificate from a medical practitioner or a government registration centre must be taken. A key point to note here is that the death certificate or medical report must clearly state that the cause of death was COVID-19.
In case the cause of death is cited as any other ailment that was triggered by COVID-19, there may be complications- in disclosures. So, cardiac arrest, for example, does not qualify for tax-free compensation even though the main cause may have been COVID-19.
In short, you must have all medical and financial documents and bills with you in case the taxman asks for any clarifications.