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How reimbursement of WFH expenditures can be tax-exempt for employees

As we fight to overcome the current pandemic, most employers have decided to allow telecommuting with employee safety in mind. Even after the government-imposed shutdown ends, most employers have decided to continue the remote work model for at least some time until the pandemic situation clears up. Over time, companies have realized that remote working is possible even in the long term and provides double benefits for employee safety and cost savings for the company. Many employers now see telecommuting as a long-term solution, either in the form of a full telecommuting or a hybrid model with a combination of telecommuting and traditional office days.

Telecommuting came with its own set of challenges and additional expenses for employees. For example, many employees had to spend additionally to ensure continuous electricity, high-speed internet data connection, ergonomic work chair, office supplies, maid in the absence of nurseries, air conditioners, etc. Some companies decided to move away from any kind of complexity and administrative burdens and gave an allowance to employees to cover expenses related to remote work. At the same time, some organizations decided to allow the reimbursement of expenses in certain items such as office tables, comfortable chairs, UPS, monitors, etc.

While both allowances and reimbursements are necessary due to business requirements, these benefits have the potential to tax the hands of employees. If employers award grants without any home work policies or documentation requirements, they will be taxable.

In the event that employers grant compensation for the purchase of assets or incur expenses, then such reimbursement can be claimed as non-taxable in the hands of the employees if it can be shown that it is necessary to perform work from home such as chairs, study table , etc.

Challenges can arise in claiming tax exemption on some benefits as the assets are provided by the employer to the employee for use and they may have mixed use, for example an air conditioner. The same applies to additional expenses on the work-from-home account, such as high electricity rates or cleaning / babysitting fees, and as is the case in current law, any expenses incurred by the employer on this account will be taxed. Fixed and comfortable chairs, study and modem tables, and high-speed Internet connections are better options to claim tax exemption; Although it's off-track, it comes with achieving some cleanliness, which is illustrative as follows:

  • No expense should be incurred to purchase non-work related furniture, such as a chair; Dining table, etc.
  • Expenses must be incurred during the teleworking period as stipulated by the employer.
  • The employee must keep the original expense invoice.

Ideally, the invoice should be in the name of the business owner to better track assets. In cases where the invoices are in the name of the employee, the policies may require the employee to repay the amount paid by the employer to purchase the assets in case the employee leaves in a short period to take advantage of these benefits.

It is preferable to buy products from a reputable store / chain that provides the GST invoice with the GST registration number and other details. Where possible, the business owner may designate stores / chains of places of purchase.

Amounts such as food ordered through food / non-alcoholic beverages apps during business hours can be declared tax-free up to Rs 50 per meal.

Working from home on such a large scale is an evolving concept and therefore the business owner has to develop sound policies to deal with tax exposure from the perspective of businesses and individuals. The policy and its strict enforcement can be a powerful guide for an employer to grant these tax-free benefits to their employees and assist in the event of an audit. Also looking at the evolving concept, the individual taxpayer is expected to be offered some tax credits for working from home in the next tax budget.

Also Read: List of important welfare schemes started by Narendra Modi Government

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