Give Tax Exemption To Work From Home Expenses, Suggests Deloitte

In its pre-budget expectations 2022, Deloitte has suggested to reduce the highest tax rate of 30 per cent to 25 per cent. It has also asked for an increase in the threshold limit for the highest tax rate from Rs 10 lakh to Rs 20 lakh. Therefore, the proposed highest slab rate (including surcharge and cess) can be reduced to 35.62 per cent from 42.744 per cent, according to the report.

As per the current income-tax provisions, one needs to pay taxes based on the slab rates. The highest slab rate (after including surcharge and cess) for income exceeding Rs 5 crore in India is currently at Rs 42.744 per cent.

“One of the expectations from the budget is a reduction in tax rate to 25 per cent. This is required to bring about parity with corporate tax rates that were brought down 2 years back. This surely is a good ask. Also, the increase in the highest tax slab is needed as a lot more income is now brought under the tax net e.g. dividend, excess provident funds (PF) contribution etc. This will give the deserved relief to assesses,” says Anita Basrur, partner, direct tax-Sudit K Parekh & Co. LLP, assurance, tax, and advisory firm.

Work From Home Expenses

Deloitte in its recent note has also called for additional deductions on the “work from home” expenses from employees. Considering the current situation, employees are working from home across businesses. Employees are likely to incur additional “work from home” – related expenditures, such as internet charges, rent, electricity, furniture, etc., and therefore, employers would need to provide allowances to meet these expenditures. In the UK, the government has provided a flat rate of GBP 6 per week of tax relief for additional household costs, if one has to work from home. Deloitte recommends that an additional deduction of ‘work from home' allowance of Rs 50,000 be given to employees in India too, who are working from home.

“In view of the pandemic, offices have allowed ‘work from home’ to employees. So, certain expenses have to be incurred by the employees. The employer, in order to do away with administrative hassles, may give an allowance to employees to take care of these additional expenses of electricity, internet, furniture, laptop etc. An exemption of this allowance, is the need of the hour,” adds Basrur.

Instances of double taxation in Provident Fund (PF) and other contributions should be removed through an amendment in the income-tax Act. As per the existing provisions, employer contribution of more than ₹7,50,000 to PF, superannuation fund or National Pension System (NPS) is taxable at the hand of the employee in that year. 

“The same PF balance, when withdrawn, would be subjected to tax withholding, if the conditions for exemption (e.g., five years of continuous service) are not complied with and there is no specific exemption provided for excluding the income already taxed mentioned above. Hence, there could be double taxation, at the withdrawal stage to the extent the contribution/accretion has already been taxed,” says the report.

Deloitte has recommended that there should be a specific provision in the Act, providing exemption with respect to contributions/accretions that are already taxed under section 17(2)(vii) at the time of PF withdrawal.