A special provision in the income tax laws together with the full deduction or at least a reasonable deduction for the various homework expenses would be a most welcome relief and fairness for the workers.
Union budget 2022: Work from home is gradually evolving and could be the future of work and corporate culture. Organizations are adapting to the challenges, restructuring their culture, technology and processes, and investing heavily in this new way of working so their people can adapt and thrive too.
While there are potential cost savings in rents and commute time, the biggest challenge is creating a concentrated workspace in employees’ homes. For this, every employee needs robust technological infrastructure support from the employer. The other ancillary costs such as increased electricity costs, work furniture, additional support at home to do household chores have also risen.
Due to the pandemic and to enable a seamless transition to working from home, companies have extended IT support to employees either directly or through reimbursements such as desktop monitors, headphones, printers, keyboards, wireless mouse, USB, etc Cable adapters, notebooks and laptops, etc.
This employer-provided necessary infrastructure to promote and enhance the work-from-home environment could also have potential income tax implications. Arguably, the prima facie view is that any benefit conferred by the employer in fulfillment of the employee’s obligations is a taxable benefit in the hands of the employee. This, in turn, makes the company responsible for correctly calculating the value of fringe benefits and withholding taxes on those fringe benefits that form part of the main salary income.
As an example, based on existing tax laws, any benefit given to the employee or any of his/her household members from tangible property (other than laptops and computers) provided by the employer is taxable as a fringe benefit at 10 per cent per annum the actual cost of such an asset or the rental fees paid by the employer less any reclaims from employees. Apart from that, the reimbursements of the incidental costs for setting up the home office (exemplary components mentioned above) such as internet charges, ergonomic chairs and other work furniture could be justified as incidental costs in the hands of an employee and thus reasonable taxes should be withheld by the company.
However, the other view that can be considered is that the computer accessories and peripherals cannot be used on their own and are part of the integral computer/laptop system itself, which can exempt them from taxable ancillary services, like this provided for in the income tax regulations. In addition, it should be noted that the devices are not made available to employees for personal use, but without access to office space due to the needs that have arisen in the face of the pandemic. Again, these facilities are used by the employee to perform office work, albeit from an external environment. In addition, it is also argued that without such homework, there is no obligation on the part of the employee to make such expenses. Therefore, he cannot be considered as an employer bearing an obligation of the employee. It only serves to fulfill the official duties of the employee from another location.
In addition, companies also have a strict home working policy with terms and conditions to strictly demonstrate the use of such facilities provided for official purposes. Also considering this, it can be said that such benefits provided by the employer should not be taxable, since it is not an obligation of the employee, but the fulfillment of tasks from a place outside the office.
Apart from that, working from home leads to some other scenarios such as: For example, in cases where employees are working from home and visiting the office due to a critical need, whether the use of the car in such a scenario should be considered used for part work, part personal, or all personal purposes. Likewise, the specific tax exemption for paid meal vouchers provided by the employer applies even if employees work from home during office hours.
At present, workers can only rely on arguments that cars can be used partly for work and partly for private use in order to take advantage of the discounted reference value, or that the time and place for eating meals are not fixed and thus the tax vouchers for free meals (for up to INR 50 per meal) can still be provided.
In the absence of clarity or specific communications, the taxation of such benefits could remain a subject of doubt and litigation. In this regard, the forthcoming budget could provide the necessary clarifications for the taxation of such diverse work-from-home benefits, similar to the clarification in the case of holiday travel benefits for FY2020-21, where the government would provide reimbursements (for the consumption of GST goods and services paid for) so that the holiday travel expense waiver does not go unused due to the travel restrictions in the pandemic.
Work from home is new and evolving. It can be seen as a necessity, since employees do not have access to the office space and it is therefore an imperative economic necessity for companies to enable working from home. A special provision in the income tax laws together with the full deduction or at least a reasonable deduction for the various homework expenses would be a most welcome relief and fairness for the workers.
(By Parizad Sirwalla, Partner and Head, Global Mobility Services-Tax, KPMG in India)
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