Adapting to a new culture isn’t always easy since it comes with its set of uncertainties, coping with changes and willingness to adapt to the new culture itself. This also applies to work or organisational environments. When the pandemic struck, most organisations struggled to adapt to the “new normal”, while some resorted to strategic changes in a phased manner. One of the most common and immediate changes adopted by most employers was the work-from-home (WFH) culture for employees to continue with their business needs.
The WFH or remote working culture was not an unusual concept for some organisations; it was used sporadically during unusual situations. Though it is a common feature now, it has neither been easy for the employers nor the employees due to certain challenges and uncertainties that both faced.
The Indian government and tax authorities (the Central Board of Direct Taxes) issued clarifications covering a few aspects concerning taxation of employees under the WFH model. For instance, Leave Travel Concession could not be availed by employees due to lockdown restrictions during the pandemic. However, an interim tax relief was provided by tax authorities to consider certain expenses as eligible for claiming tax exemption. Similarly, Covid medical support provided by employers or well-wishers to employees or family members were exempted, subject to certain conditions.
Given that people are tackling the pandemic with vaccinations and other safety measures, the idea of moving back to the traditional workplace has started gradually, albeit with modifications. The hybrid model, a mix of traditional in-office and WFH models, is going to be the new future not only due to pandemic-related risks but also to minimise business costs.
Hence, it becomes crucial to relook at employee compensation elements that may have become redundant or need suitable modifications.
Considering that the Union Budget is around the corner, some compensation elements that need modifications or tax sops are discussed below:
Enhancement of tax deduction limits for certain allowances/reimbursements: Household expenditure has been adversely affected since the onset of the pandemic on account of increased medical cost and WFH expenses such as cost of furniture, electricity, internet, etc. Keeping these in mind, the standard deduction limit should be enhanced from Rs50,000 to Rs75,000.
Similarly, an exemption for children’s education allowance is available only up to Rs100 per month for up to two children. Given the steep increase in expenditure owing to online education and the government’s efforts for better education for young India, the exemption limit needs to be enhanced to at least Rs3,000 per annum per child.
WFH allowance: Meal allowance or food coupons provided to employees were eligible for certain exemptions. Club membership facility is taxable for employees as perquisites. Given the WFH concept, these are redundant and employers may consider providing a WFH allowance. A separate deduction should be introduced in the upcoming Budget for WFH allowance.
Expansion in scope of House Rent Allowance exemption: Currently, employees can avail exemption if the rental accommodation was occupied during the financial year and thereby, the period not occupied during the year is left out of the exemption net. Given that many individuals have moved to their hometowns or are working remotely, the Budget should extend the exemption in case of non-occupied rental accommodation. Necessary rules in this respect should be notified.
Deduction for contribution to Provident Fund (PF) account: In recent Budgets, the excess contributions and interest accruals in PF accounts were brought under the taxation net. However, employee PF contribution qualifies under the combined deduction limit of Rs150,000 (under Section 80C of Income-tax Act, 1961) and therefore, should be provided separately.
Deduction for house maintenance charges: Considering the increasing house maintenance expenses, salaried taxpayers owning just one house property should be compensated for the maintenance charges paid to society and property taxes paid to the local authorities.
The income head “Salaries” being a vast concept and forming a substantial taxpayer base needs more clarity and appropriate tax-sops considering the recent and futuristic changes in ways employers shall operate their businesses.
Aakash Uppal is Partner and Deepashree Shetty is Director-Tax & Regulatory Services at BDO India
