On 5th November 2020, during the evening news scrolling, I stumbled upon this news bit titled –   

“’Work from home’ is here to stay: Centre eases compliance norms for BPO industry”

Having recently completed a short survey for personal study on #WFH trend, it was almost impulsive that I swiped the article to scan for details.

It was about how, in a major policy change for IT, ITeS and BPO/ KPO industries, the Department of Telecom has significantly eased guidelines known as Other Service Provider (OSP) Guidelines. These guidelines required the companies operating in various businesses such as Telebanking, Telemarketing, Call Centers, etc. to register their OSP centers and prevented employers from extending ‘Work from Home’ facility to their employees. Now under the new OSP Guidelines, the registration requirement has been done away with and, in fact, the Guidelines now specifically provide that OSPs may operate as ‘Work from Home’ or ‘Work from Anywhere’.

However this article is not about the changes in OSP Guidelines. This is about the proactive decision of government to promote Work from Home environment in BPO and other industries. Does this indicate that keeping aside rhetoric, there is indeed a common belief that Work from Home will be the norm going forward? Well, atleast my survey tells so.

#WFH Finding 1 – The survey was taken by 156 people (told you it was short and personal!), working in diverse roles, businesses, and industries. Out of the total respondents, 88% people agree or strongly agree that Work from Home is indeed the new normal.

Work from home is the new normal

 That is some upshot, isn’t it! However, it does not come as a surprise as most people, according to the survey, claimed that their efficiency actually increased during working from home when compared to the traditional office setup.

Efficiency in work from home vis a vis office setup

Not only India but the entire world is in awe of how smooth the transition to Work from Home environment has been. Tax authorities across the globe are reckoning that this is may not just be a fad but the future phenomenon and are making necessary provision in their laws to accommodate the evolving situation. However, before discussing what the world is upto, let’s first understand why at all is there a need for ‘Work from Home’ tax relief in India.

What are deductible or exempt allowances?

Allowances are basically that component of cost to company or CTC, as known in common parlance, that employers provide to their employees to enable them to meet certain expenses. These may be personal expenses or expenses required to be incurred for performance of employment duties.

There are numerous  deductible/exempt allowances currently available to salaried taxpayers under Indian Income Tax Act. The Act has laid down different threshold limits for different allowances upto which the amount received under that allowance shall be exempt or shall be reduced while calculating taxable salary income of a person. This threshold limit, in many cases, is restricted to the amount of actual expenditure incurred by the employee.

Why ‘Work from Home’ allowance/deduction?

Reason 1 – Existing allowances may no longer be beneficial!

As the onset of pandemic has blurred the lines between bedroom and boardroom, many of the expenses that employees were incurring in the pre Covid-19 era have touched bottom. What this means is that in the absence of actual expenditure, the allowance received by employees for a particular expense, say conveyance allowance, will become taxable in its entirety in the hands of employees. Similarly, any person whose CTC constitutes of one or more such allowances like House Rent Allowance, Uniform Allowance, Meal Coupons / vouchers etc. will have to shell out higher taxes on her/his income.

#WFH Finding 2 – The House Rent Allowance, as a deduction, is being claimed by 54% of the respondents. Out of these, almost 32% people claimed that their rental expenditure has reduced as they are working from their parent’s home or their own home in some other city. 

percentage of responding claiming HRA deducation

Percentage of respondents whose rent expense reduced due to WFH

Reason 2 – Setting up home office is a costly affair!

Apparently, the convenience of working from home in T-shirts and shorts during the horrid summers of New Delhi comes at a cost – higher electricity bills! Not just the air conditioning, setting up an efficient home office needs a dedicated high speed broadband, a decent enough furniture and some additional computer accessories such as an extra screen or printer. All of this adds to the expense of employees unless reimbursed by the employers. Such an expense, in case of a self-employed tax payer, would be allowed to be deducted to compute taxable income. But for a salaried taxpayer, this is not a possibility currently. Hence where an employee received Rs. 100 as salary and incurred Rs. 5 as expense for working from home, the taxable amount will be Rs. 100 in hands of employee, when ideally it should have been Rs. 95 only.

Some employers have been reimbursing the additional cost (infrastructure cost or / and utility expenses) incurred by employees or have provided a fixed amount each month towards these costs. From tax point of view, in case of reimbursement for broadband expenses, general consensus is that it can be clubbed with telephone reimbursements which is exempt from tax. For other expenses, however, the amount received by employees from employer will be taxable in hands of employees in entirety. Hence where an employee received Rs. 100 as salary and Rs. 5 for work from home expenses incurred by him/her, the taxable amount will be Rs. 105 in hands of employee, when ideally it should have been Rs. 100 only.

There may be a situation where employers purchased the assets, say chair or desk, and provided it to employees while retaining ownership with themselves. Even in such cases, 10% of the value of asset will be treated as taxable income of employees. Although, this does not apply in case of laptops and computers.

 #WFH Finding 3 – Majority of the respondents (57%) claimed that they did not receive any reimbursement from employers. Only 15% of the respondents received reimbursement for both infrastructure cost and utilities expenditure.  

Reimbursement of work from home expense by emloyers

How is the world dealing with it?

A large number of countries have been responsive to the demand of salaried taxpayers and have timely brought in laws to cope with the situation of ‘Work from Home’ expenses –

Australia

Australian tax laws allow an employee working from home to claim deduction for expenses actually incurred relating to work. These may include various expenses like –

  • electricity and gas for cooling, heating, and lighting
  • the decline in value of home office furniture (desk, chair) and furnishings,
  • the decline in value of phones, computers, laptops, or similar devices
  • phone expenses
  • internet expenses
  • cleaning (if a dedicated area for working is used)
  • computer consumables and stationery such as ink

The Australian tax authorities further released a guideline, currently applicable from March 2020 to December 2020 only, wherein employees working from home may alternatively claim estimated deduction of 80 cents per hour for each hour of work done from home.

Belgium

Belgium tax authorities have issued a circular providing that beginning 1st April 2020, employers may pay a monthly allowance of 129.48 Euros (126.94 Euros prior to April 1, 2020) , non-taxable for the employee and fully deductible for the employer, subject to condition that allowance is paid only to employees that regularly work from home for at least five working days per month and allowance is not combined with any other office allowances.

Ireland

In its Budget 2021, Ireland has made following announcements related to ‘e-working’ tax relief for certain home expenses –

  • Tax free allowance of upto 3.20 Euros per day can be given by employers to cover the additional costs of working from home, such as electricity, heat and broadband. Where employer provide any assets for business use such as computer or laptop, printer, scanner, telephone, mobile or office furniture, the same shall be completely tax free.
  • If employer does not pay any allowance, then tax relief of 10% of the cost of electricity and heat incurred and 30% of the cost of broadband incurred can be claimed by employee in tax return.

New Zealand

Under New Zealand tax laws, an employee is eligible to receive from its employer, an exempt allowance of upto 5 New Zealand Dollars (NZD) per week for mobile phone and internet costs incurred for working at home. Additionally, following temporary allowances will also be treated as exempt income of employees till March 2021 –

  • Weekly allowance of upto 15 NZD for other working from home expenses, irrespective of actual expenses.
  • Allowance of upto 400 NZD for furniture or other equipments required for work from home.

New Zealand tax authorities have reported that they will soon issue a public statement dealing with the tax implications for employees working from home as a “new way of working”.

Singapore

Inland Revenue Authority of Singapore (IRAS) has announced a tax exemption on payments received by employees from their employer for accommodation (upto 75 SGD per day) and food, transport and daily necessities (upto 50 SGD per day) due to work from home situation. These exemptions are currently for the amount received in year 2020 only and subject to condition that these benefits were not ordinarily received before 1st February 2020. Further, where expenses are not reimbursed by employer, employee may claim additional cost of electricity, phone and broadband i.e. difference between pre-covid expense and post-covid expense as a deduction in its tax return.

South Africa

The South African Revenue Service (SARS) allows certain taxpayers to deduct their home office expenses from their taxable income. For permanent employees, it is possible to deduct costs related to rent, interest on a mortgage bond, repairs to the premises, rates and taxes, cleaning, and all other expenses in connection with the dwelling. They may also claim wear and tear on computer hardware and software, furniture, and equipment (where owned by the employee and not the employer). This is subject to the condition that home office is available for regular and exclusive use by the individual to work for the employer for which they earn remuneration.

United Kingdom (UK)

In UK, employees working from home have been able to receive tax free payments from employers to cover their additional work from home expenses ever since 2003. Under the relevant tax laws, an employer has option to –

  • Pay fixed amount (6 Pounds per week or 26 Pounds per month) as tax free payment to employees irrespective of actual expense incurred by employee or
  • Reimburse the actual additional costs incurred by the employee for heating and lighting, insurance, metered water, telephone or internet access charges and business rates (if applicable). This amount too is tax free for employees.

Conclusion

In his Union Budget Speech of 2018, former Finance Minister, Late Sh. Arun Jaitley revealed that –

“For assessment year 2016-17, 1.89 crore salaried individuals have filed their returns and have paid total tax of Rs. 1.44 lakh crores which works out to average tax payment of Rs. 76,306/- per individual salaried taxpayer. As against this, 1.88 crores individual business taxpayers including professionals, who filed their returns for the same assessment year paid total tax of Rs. 48,000 crores which works out to an average tax payment of Rs. 25,753/- per individual business taxpayer.”

Thus salaried taxpayers are a major contributing group of tax collections. A timely modification of law by the tax authorities providing the anticipated tax relief will go a long way in reducing the tax burden on the salaried tax payers who may end up working from home longer than they originally anticipated.

The Finance Minister, Smt. Nirmala Sitharaman recently inspired hopes once again as she said in an event that the option to come up with another economic stimulus package is not yet closed. Only time will tell if this Stimulus 2.0, if at all brought, will see a step in this direction or not.

(Disclaimer: The opinions expressed in this article are that of the writer and are for information purposes only and do not constitute an advice or a legal opinion.)

Author Bio

Name: Sarthak
Qualification: CA in Job / Business
Company: N/A
Location: New Delhi, New Delhi, IN
Member Since: 15 Feb 2020 | Total Posts: 1
Chartered Accountant | Tax, Regulatory and Business Advisory | Mergers & Acquisitions View Full Profile

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