ITR filing for the COVID Year – Keep This in Mind

The Income-Tax Return (ITR) to be filed in this season is in respect of income earned in financial year 2020-21. For many tax-payers, the extended due date for such ITR filing is 30th September 2021. This ITR is distinct for a specific reason that the entire financial year 2020-21 was consumed in the cycle of restrictions – relaxations – restrictions related to Covid-19. The year was marked with salary cuts, job losses, new normal of work from home and relief packages from the Government. All these issues are relevant for the purposes of ITR filing.

Salary cut or deferred salary

Many employers have reduced the salaries of the employees. This is different for different organisations. This implied that you may be receiving a salary lesser than your CTC agreed upon with your employer organization. in some cases, such salary cuts are accompanied by promises of future salary increases in proportion to the salary cuts. In such a situation, as an employee, you should ensure that such a salary cut is reflected properly in Form 16, and TDS is also deducted accordingly. The promised future increases in salary, if not implemented in FY 2020-21 need not form part of Form 16.

Many employees have also faced deferred salary payments. They have received the salary after the due dates of receipt of the salary. The salary income is taxed on at the time of it becoming due or at the time of receipt. In case, the delayed salary is paid before 31st March 2021, then there won’t be any issues since all the year’s salary income is paid in the same financial year. However, if this year’s salary is credited in next year, then the salary shall be taxed on the due basis. In such a situation, the employer might deduct TDS at the time of payment. However, you may not be able to claim such TDS credits while filing ITR. In this case, it is better to file the ITR by showing the entire salary including the receivable salary for FY 2020-21, and pay self-assessment tax. In case the employer pays you salary later and deducts TDS thereon, you may claim this TDS in the next year and claim refunds.

LTC Cash Voucher Scheme

In October 2020, the Government announced that for claiming the LTC exemption you need not travel, and instead you need to spend 3 times of that money on GST liable consumer goods/services to get the tax exemption of the LTC amount. As per this scheme, you do not need to travel for claiming the tax exemption. You can purchase goods or services which are GST liable and pay for them through banking channels and claim the tax exemption for the assessment year 2021-22. The salient features of the scheme are as follows:

The employee has to exercise this option of the LTC Cash voucher scheme for LTC Block starting as of January 2018 and ending in December – 21.

  • The employee must incur expenditure on goods and services which are liable to GST at 12% or more. Such goods or services must be purchased from GST-registered vendors or service providers.
  • The employee is expected to purchase such goods and services in the period from 12/10/2020 to 31/03/2021.
  • The maximum limit for tax exemption is ₹36,000/- per person in the employee’s family or one-third of the amount spent on such GST liable goods and services whichever is lesser.
  • The payment for such goods and services should be made only through banking channels like cheque/DD/Credit or Debit cards or digital modes like UPI. Cash payments are not allowed.
  • The amount for tax exemption cannot exceed the above said monetary limits in any case.

In case your employer has provided LTC to you and you have utilized the same as LTC Vouchers, you can claim tax benefits on the same in this manner.

Allowances for work from home

The Covid has caused adoption of ‘work-from-home’ practices across organisations and lately employers are seen promoting this adoption. This has caused employees to set up offices at home. This includes required IT infrastructure (hardware and software) and furniture to accommodate your office at home. Some employers own such infrastructure, and some have provided allowances to employees against work from home. Such allowances provided against work from home are not tax-free. They are taxable as income from salary. As an employee, if you have received such allowances, please include them in your income from salary.

Withdrawal from PF Account

Many of the taxpayers faced financial constraints since the onset of the pandemic and they resorted to withdrawal from their PF account. The Government, on March 27, 2020, allowed the subscribers of EPF to withdraw the PF from their account. The online facility was made available on March 29,2020. Under this, non-refundable withdrawal to the extent of the basic wages and dearness allowances for three months or up to 75% of the amount standing to member’s credit in the EPF account, lesser of the two, is provided. This scheme was availed by about 7.6 million persons.

This advance of EPF will be reflected in your bank account. The FAQs issued by the EPFO clearly state in answer to Q. No. 13 that this amount of advance withdrawal is exempt from income tax. However, the amount withdrawn from EPF needs to be shown in the ITR as exempt income. As a taxpayer, you need to show this amount as exempt income in the appropriate column in the ITR.

Covid assistance from employers and well-wishers

During last year and more, many people suffered from Covid and sought active medical treatment. Few have succumbed to covid too. This has caused a terrible financial crisis for some people. Therefore, the affected people have sought financial help from their employer as well as other well-wishers. This amount reflected in their bank accounts would need to be shown in ITR. Therefore, in order to help people tide over this crisis, through a Press release on 25.06.2021, the Government has announced that:

  • The amounts received by you from employers or other well-wishers for medical treatment of Covid.
  • The amount of help from employers or well-wishers received by family members of a person who has succumbed to COVID. No upper limit to the exemption to amounts received from employers. Maximum exemption of ₹10 lakhs received from others than the employer.

Though the said amounts are not taxable, you need to show these amounts as exempt in an appropriate column in the ITR.