Coronavirus | Tax implications for companies operating in SEZs

Coronavirus | Tax implications for companies operating in SEZs

As hybrid and remote work become more commonplace, experts seek clarity from the Union Budget 2022 on tax implications for companies operating in SEZs and WFH allowances.

In the wake of the COVID 19 epidemic, the industry is using a hybrid working model where work will be done both on-site and remotely as a matter of routine.

This was considered a 'temporary' requirement, but now it will only be a way of working. The industry is concerned that an aggressive interpretation of Section 10 AA of the Income Tax Act could lead to instances where workers from the SEZ Unit are ineligible for the tax holiday.

By way of explanation, the section that Work from Home' WFH by employees of Special Economic Zones SEZ unit would not affect the eligibility of the tax holiday available under the section. The section allows taxpayers to take deductions for businesses in SEZs.

As we emerge from the epidemic, many companies are exploring hybrid models, wherein employees will work both onsite and remotely. There is a need to explicitly recognise this model for Special Economic Zone units without any impact on indirect tax benefits claimed by the companies.

As employees are working from home across businesses, they are likely to incur additional Work from Home WFH related expenses such as internet charges, rent, electricity, furniture, etc. Employers would need to provide allowances to meet these expenditures.

In the UK, the government has given a flat rate of GBP 6 per week of tax relief for additional household costs if one has to work from home. An additional deduction of the WFH allowance of Rs 50,000 is recommended for employees who are working from home.

As a result of the COVID 19 epidemic and subsequent protocols, employees should be supplemented for additional expenses that are incurred while working from home, such as electrical expenses, internet and connectivity expenses, office furniture and a one-time setup cost.

To address this one-time set-up cost, up to 50,000 dollars can be provided and average support expenses up to Rs 5000 per month or Rs 60,000 per annum can be allocated as tax-deductible expenses over and above section 80 C.

Given the current situation of the pandemic and the medium to long term effectiveness and use of hybrid remote working models, WFH and its financial impact on employees is a big issue that may be addressed in the 2022 Union Budget.

There could be a case for additional allowances for work from home-related expenses like office furniture, rent, broadband charges, better gadgets, or possibly a new deduction tax relief for home office expenses in the budget.

A higher medical cover for employees that cover both mental as well as physical health could be welcomed as the long-term adverse effects of the epidemic has been severe, according to a health and wellness perspective.

The costs that are incurred by employees to manage work should be eligible for tax benefits or a standard limit, because of the current work from home hybrid work model for most organisations.

WFH and hybrid working is an evolving work culture that is mutually beneficial for both employees and organisations. Issues like the Pandemic that propelled this culture are actually helping growth in employment rather than affecting employment opportunities. Any tax burden or constraints under labour laws would be detrimental to the overall ecosystem.

Many companies provide laptops, computers and furniture for employees to work from home. Some employees are given a fixed allowance to bear the cost of remote working. The budget should explain how these costs are to be accounted for by companies and provide some relief for such allowances to employees. If actual bills are supported, such payments should be exempt from tax in the hands of employees.

Yogesh Agarwal, Founder and CEO of Onsurity employee healthcare platform for startups and MSMEs.

The new normal of 'work from home' policy adopted by the companies has induced people to buy properties in their hometown, especially Tier 2 or Tier 3 cities. The investment multiplier can be given a boost by an increase in home loan interest rate deduction from Rs 1.5 lakh to Rs 5 lakh per annum.