ET Wealth | Has Covid increased your tax? | Economic Times

Girish Agarwal’s salary has been cut due to Covid, but he will pay a higher tax this year. “I will not be able to claim exemption for LTA due to restrictions on travel,” says the Delhi-based executive glumly. With the LTA now taxable, his income has gone up by Rs 60,000 and his tax liability by almost Rs 19,000.As work-from-home becomes the new normal across the country, salaried taxpayers are seeing their tax shoot up. Many of the allowances in the pay package, including the commonly used reimbursement of fuel or conveyance expenses, have become taxable due to the travel restrictions imposed by Covid. “Tax benefits on allowances are based on actual spends. If an employee has not travelled or spent on fuel, the money received will get taxed at normal rates,” says Archit Gupta, Founder and CEO of tax filing portal Cleartax.Taxpayers who expect to escape the tax net because their taxable income is below Rs 5 lakh or those with incomes very close to the threshold for tax surcharge should be especially concerned. An increase in the taxable income beyond the stipulated threshold could push up their tax liability significantly.Though LTA is a tax-free perk, the rules are not very tax friendly. LTA can be claimed twice in a block of four years. The current block is from 2018 to 2021. LTA can be carried forward to the next block but must be utilised in the first year of the next block. That leaves salaried taxpayers with a very small window.While travel expenses have come down, many other expenses have shot up in the work-from-home environment. In the past three months, the average middle class urban household has spent a neat packet on computers and furniture and is also paying for high-speed internet connectivity that can support video conferencing. “Expenses on computers and internet connectivity have shot up. Due cognizance should be given to these changes and salary structures should be rejigged accordingly,” says Shubham Agrawal, Senior Taxation Advisor at TaxFile.Moveable assets as perksOne way out is for companies to allow employees to purchase moveable assets, which can be treated as a perk. “Many IT companies have been offering this to employees for years. Now others should also consider this,” says Gupta of Cleartax. Here’s how it works. The employee purchases items in the name of the company and is reimbursed the amount. Items can include computers, laptops, white and brown goods and even furniture. Since the items are purchased in the name of the company, it is able to claim depreciation of these assets. In about five years, the book value of the item depreciates to nearly zero and the company sells it to the employee for a nominal sum (usually Rs 1).This will be particularly useful in the current situation where households have been forced to purchase laptops,computers and other accessories to facilitate online classes for children. “Since LTA and reimbursement of conveyance cannot be claimed in the current situation, salaries can be restructured to include perks that can be claimed by employees,” says Gupta.However, there are a few glitches here. These purchases are not completely tax free, though the tax is not very high. Under Section 17(2), the employee is taxed for 10% of the value of the asset. So, if you bought an air conditioner worth Rs 30,000, you will be taxed for Rs 3,000. The good news is that computers and laptops are exempt from this tax.There is another problem. Unlike other perks, here the item belongs to the company. If an employee decides to leave, he will have to return the depreciated value of the item to the company. Even so, the provision of moveable assets to employees is an efficient way to get past the tax impact of Covid on allowances.How you can beat the Covid taxRejigging the pay structure can help reduce the tax imposed by Covid on salaried taxpayers. 77165687Packing in tax-free perksAnother change can be a higher telephone allowance. As mentioned earlier, employees are extensively using highspeed internet at home and phone services for office work. Phone allowances are usually Rs 500-750 a month (Rs 6,000-9,000 per year) but if the broadband bill at home is included, it can work out to more than Rs 2,000 a month. A higher telephone allowance, which can be claimed as a tax-free perk, can bring down the tax liability.Another tax-free perk worth considering is food and meal coupons. Up to Rs 2,200 a month paid to an employee to purchase meals and food items is tax free. It will allow Rs 26,400 to escape the tax net in a year. Companies can also give low-cost or interest-free loans to employees. An interest-free loan of up to Rs 20,000 is tax free, but any amount above that will be treated as a taxable perk. “Even so, it works out to be much cheaper than a personal loan from a commercial bank or NBFC,” says Sudhir Kaushik, Co-founder of tax filing portal Taxspanner.Kaushik says this is an opportune time for companies to offer benefits that employees would normally not consider. For instance, the NPS benefit under Sec 80CCD(2), under which up to 10% of the basic salary put in the NPS on behalf of the employee is tax free. This benefit is to be offered to employees on a voluntary basis. “The NPS benefit can effectively neutralise any undue increase in the taxable income,” says Kaushik. If your LTA (which is usually 10% of the basic) has become taxable, opting for NPS can bring down the taxable income to the normal level. 77165711The NPS benefit under Sec 80CCD(2) is available only if the company makes the contribution and it is part of the salary structure of the employee. However, an additional Rs 50,000 can be invested in the scheme by a taxpayer to claim deduction under Sec 80CCD(1b). If the taxpayer has enough liquidity, he can invest in the scheme on his own. Given that fuel and conveyance allowances are not being used, taxpayers might have the liquidity to invest now.Don’t take the evasion routeThe measures we have discussed till now are perfectly legal ways of escaping tax. But some people also get tempted to take the bumpy road to tax evasion. Fraudulent use of donation under Sec 80G is a welloiled strategy followed by unscrupulous elements. Here is how the scam works. Many dubious NGOs and charitable organisations receive cash donations but don’t want to disclose that. Instead, they lure taxpayers to donate money by cheque and pay them back in cash. Some organisations ask for a share in the tax benefit that the taxpayer gets under Sec 80G. Others are content with laundering their unaccounted cash into a cheque payment and let the taxpayer get the full tax benefit.It is also common to claim deductions in the ITR even without making the investments. For instance, one can claim deduction for medical insurance or even tax saving investments under Section 80C without submitting any evidence.However, tax experts warn that discrepancies may get detected when the return comes up for assessment. “Tax evasion is a serious offence. With organisations sharing details and so much data getting processed automatically, the tax department is getting better at spotting tax evaders. If you get caught, you have to pay a heavy penalty,” says Kaushik.Also, the tax department is keeping a keen eye on evaders. From this year, the Form 26AS will have details of high-value transactions.