Budget 2022: Income Tax Exemption For Covid-19 Compensation

Compensation received by individuals from their employers for treatment of illness related to Covid-19 pandemic will be exempt from tax. The relief will also be applicable for money received by an individual for treatment of any of their family members.

In June last year, the government had announced that income tax shall not be charged on the amount received by a taxpayer for medical treatment from employer or from any person for treatment of Covid-19 during FY20 and subsequent years.

This relief has now been proposed to be incorporated in the income tax law. The Finance Bill, 2022, has amended Section 56 of the Income Tax Act to exclude the receipt of such payment from the employer from the definition of income from other sources.

The second amendment to this section excludes money received from an employer by a family member of the deceased employee.

Such amount which is received by the family member in total should not exceed Rs 10 lakh and the person should have died due to Covid-19 pandemic.

If the amount due to the death is received by the family member within 12 months from the date of the death then the money will not be considered as income, the memorandum explaining the changes to Finance Bill, 2022, said.

The government has also formalised the earlier announcement that money received from an employer for their or their family member's treatment for Covid-19 will not be considered as perquisite.

For this purpose, Section 17(2) of the Income Tax Act has been amended to exclude such benefit from being defined as perquisite.

Perquisites mean benefits received by an employer above their salary/wage and includes housing rent allowance, dearness allowance, etc.

The changes will be applicable retrospectively from April 1, 2020. And so, the benefit will be available from assessment year 2020-21 and the subsequent assessment years.