Union Budget 2022: Separate income tax deduction for Covid treatment needed; Here’s why

The Covid-19 pandemic is wreaking havoc across the world – including India, for the last two years or so, but still no specific deduction under the Income Tax Act, 1961 has been provided by the government which covers the treatment cost for COVID-19 patients who are not covered under any health insurance. This despite the fact being that currently, a handful of deductions are available under the I-T Act for medical treatment for self or dependent suffering from disability/ severe disability, medical treatment of prescribed diseases and ailments. The same is the case with a few other expenditures borne by the employer on the treatment of their staff.

No wonder, ICAI has suggested to insert ‘COVID-19’ as an eligible disease for the purpose of claiming deduction under section 80DDB. It says, “In current times, it may be considered to allow medical expenditure incurred on treatment COVID-19 as expenditure incurred for treatment of specified disease for the purpose of claiming deduction under section 80DDB.”

Keeping this in view, income tax experts have made a few recommendations for providing tax relief to Covid patients and their families. Here we take a look at some of them:

Taxability of COVID-19 vaccination and treatment related expenditure borne by employer

During the ongoing pandemic, many companies have been facilitating the administration of COVID-19 vaccination to employees and eligible family members at office premises or otherwise providing reimbursement towards vaccination expenses incurred by employee directly for self / family members. Further, many companies have provided supplies of oxygen cylinders, oxygen concentrators, medicines, and other medical supplies to affected employees and their families.

There is dearth of clarity on the tax treatment of such cost of vaccinations (as borne by the employer) or medical supplies provided by the employer to employees and family members.

“While the press release dated 25 June 2021 provided relief in terms of amount received by a taxpayer for medical treatment from employer, there is no clarity on benefits in kind provided. It may be contended that the cost of COVID-19 vaccination and/or provision of medical supplies for the employee/ dependent family is not a measure of personal benefit/ amenity provided to an employee, but a decision guided by business necessity to ensure that employees (as well as their family members) are healthy and safe so that the employee can provide continuous and uninterrupted services for the Company. Therefore, such cost should be abundantly clarified to be non-taxable in the hands of employees,” says Parizad Sirwalla, Partner and Head, Global Mobility Services-Tax, KPMG in India.

Separate deduction for COVID-19 treatment

Currently, a few deductions have been prescribed under the Income-tax Act, 1961 for medical treatment for self or dependent suffering from disability/severe disability, medical treatment of prescribed diseases and ailments. However, there is no specific deduction under the Act which covers treatment cost for COVID-19 patients who are not covered under any health insurance.

Donation made to PM CARES fund designed specifically for providing COVID-19 relief is eligible for 100% deduction u/s 80G of the I-T Act, but no corresponding deduction has been notified for expenses incurred on treatment of the disease itself.

“Given the substantial cost involved in COVID-19 treatment in government or private hospitals, a separate deduction capped upto Rs 1,00,000 or actual treatment cost incurred by the taxpayer for self or family, whichever is lower, may be considered to be introduced to provide much-needed relief to the taxpayers specially when such costs are not covered under a health insurance policy/ reimbursed by the employer,” suggests Sirwalla.