Work from home: FM Sitharaman needs to relook at income tax rules

The concept of a workplace has changed significantly, thanks to Covid. At its peak and during the lockdown, corporates were forced to have their workforce work from home (WFM). As the lockdowns were lifted and the situation improved, many corporates reviewed their workplace strategies, having reaped the benefits of WFM through reduced costs, managed cash flows and managed social distancing to minimise the spread of the virus. Going forward, a dual approach, where some part of the workforce will continue to WFH while some will work from offices, will be the new normal. Thanks to technology and internet connectivity, the pandemic has proved that employees are able to work from home and deliver.

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With homes becoming extensions of offices and the new workplace, a different set of challenge has arisen for employers and employees. The employer needs to ensure that the employees, from administrative staff to senior management are able to work efficiently and effectively. The work area, connectivity, basic infrastructure needs to be conducive. Further, employees need to remain in good health. Facilities which in normal course are made available to employees in offices have to be extended to homes – not as benefits to employees, but to enable effective work. These facilities are not specifically called out as exempt in India’s taxation laws. It is crucial that this is addressed in the Budget to avoid litigation. Some areas of consideration are:

1) Support for infrastructure costs: These could include furniture such as ergonomic chairs, work tables, computers, power back up, internet connectivity etc. Employers may look at the option of reimbursing such costs or providing one time/annual allowance to cover the expense.

2) Periodic expenses: Internet charges, electricity bills, mobile expenses, cost of stationery will be borne by employees across all levels. It was normal practice for employers to bear expenses such as telephone, broadband expenses even in past years. However, the type of expenses and the quantum are likely to be higher in the WFH set up.

3) Healthcare expenses: Many corporates provide gym facilities in their offices or in designated centres for keeping employees in fit condition. These would not be accessible in a WFH situation and alternative arrangements such as a reimbursement for gym facilities may be looked at.

4) Creche facilities: Employer-provided creche facilities were closed during the lockdown and after that, for safety reasons. Even as they open, for employees working from home, the regular crèche facilities may not be convenient, given the distance from office. Alternative solutions may need to be looked at. Given safety concerns some employees will not want to send their kids to creches. In such cases, employers are considering paying an allowance to support employees hire a maid during working hours. Exemption of such allowance in the hands of employees would provide relief to employees.

All of these are genuine costs borne by employers for their employees in the current environment, where the intention of the employer is to ensure that work is carried out smoothly without any hindrance and to ensure health and safety of employees.

As there is no specific income tax provision exempting the payment of such allowance/reimbursements, they may be held to be taxable if not clarified in the Tax Rules. Hence, a genuine expectation from Union Budget 2021 would be to specifically clarify that such employer costs are not taxable in the hands of the employees, whether they are provided as a reimbursements to employees or as an allowances. The onus for verification of expenses would still be upon the employer, who would need to ensure that the invoices are submitted by the employee and verified. If paid as an allowance the employer would need to ensure that the quantum is reasonable given the nature of work undertaken by the employee.

Across the globe, governments of different countries are looking at providing exemption/deductions for allowances provided/expenses reimbursed by the employer to employees working from home. A similar approach is expected by the Finance Minister in the Budget as well.

Tapati Ghose is Partner, Deloitte India and Poornima G is Manager, Deloitte Haskins and Sells LLP