The last three years have seen major changes in a lot of areas, be it the economic or political environment, lifestyle patterns, as well as business and work arrangements.
Businesses have had to realign their outlook to the modified situation resulting in a change in policies and procedures, introduction of alternate work arrangements, and so on. This has led to new work norms, such as work from home and/or remote work arrangements, thus triggering much attention as well as spawning associated concerns and expectations on the tax front.
Why are we talking about remote working and/or working from home so frequently today?
To understand this, we need to see how businesses have evolved in the aftermath of the Covid-19 pandemic and the measures from the regulators.
The Business Situation Today
While businesses globally have been affected by the pandemic, many companies have embraced this as an opportunity to change. Work culture has evolved, and it is shifting towards a remote and/or hybrid working model even after the tremors of the pandemic are subsidising.
Though it wasn’t practical to implement remote work for companies in certain industries (such as manufacturing, healthcare, transportation, warehousing and construction), those in other sectors (like IT-ITES, e-commerce, fin-tech, edu-tech, and consulting) were able to utilise this opportunity positively.
According to a global remote work survey conducted in 2022, over 80 per cent of organisations globally allow some level of remote and hybrid ways of working to their employees today.
Remote working has both benefits and challenges. The Covid-19 pandemic demonstrated that productivity is not hampered when employees work remotely. However, it does incur employees with its typical set of expenses, such as installing high-speed Internet connectivity, ensuring stable electricity, having the requisite hardware to connect seamlessly, owning ergonomic furniture, stationery, and so on.
Recognising this, many organisations are supporting employees through one-time reimbursements and monthly fixed allowances to meet such expenses. Further, during the initial outbreak of Covid-19, the government had permitted the claim of exemption of Leave Travel Allowance (LTA) provided employees had incurred expenses on specified goods and services, and subject to other conditions laid down. Through this, the government was not only able to encourage the taxpayers to spend, but to also avail themselves of tax benefits despite the travel embargo.
Let us see if the current tax laws allow for deduction and/or exemption for remote working.
The prevailing tax laws exempt allowances or benefits provided exclusively for the purpose of employment.
But after the pandemic, most companies have begun reimbursing expenses incurred to set up a home office. This includes providing one-off payments to purchase required furniture and monthly benefits to maintain the remote working set-up.
While both the allowances and reimbursements are purely on account of business needs, these benefits have the potential of being taxed in the hands of the employees.
If allowances are granted by employers without any work-from-home related policy or documentation requirement, the same will be taxable.
On the other hand, in case employers are granting reimbursements for purchasing assets or incurring expenditure, it is possible to claim such reimbursement as non-taxable in the hands of the employees, if it can be demonstrated to be necessary for carrying on work from home. It is therefore important for employers to ensure that the process is backed up by policies and/or documentation.
Many salaried individuals today are in the highest tax slab (42.7 per cent) today, with limited deductions and exemptions, in comparison to other categories of taxpayers, such as firms or corporates.
Further, overseas jurisdictions, such as Belgium, the UK, Australia, France, Canada and South Africa among others, have announced certain tax reliefs and/or deductions.
For instance, in the UK, remote employees can claim tax relief at £6 a week, with no requirement for furnishing evidence. Alternatively, they can claim tax relief on the exact amount of expenses incurred instead. In this case, evidence, including bills and receipts, is required.
Similarly, the Australian and Canadian governments, too, introduced provisions to enable taxpayers to avail deduction on expenses incurred for working from home. We do not have any such measures in India as yet.
Expectation From Union Budget
Since remote work arrangement has become the norm, it is important that it is backed by related tax reliefs to make it a success. Taxpayers are looking to the forthcoming Union Budget to introduce a clear and direct provision in income tax laws for providing tax exemptions and/or standard deductions relating to remote work. Further, these deductions could be allowed under both the old and new tax regimes, without any differentiation, so that the benefit reaches maximum number of salaried individuals.
Radhika Viswanathan is executive director, Vinit Turakhia is senior manager and Jayabalaji is assistant manager, Deloitte Haskins & Sells LLP
(Disclaimer: Views expressed are the author’s own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.)