Exemption of amount received for medical treatment and on account of death due to COVID-19 - BUDGET UPDATES 2022

[CS Swati Dodhi]

Exemption of amount received for medical treatment and on account of death due to COVID-19 - Amendment of section 17 and section 56 of Income tax Act

Section 56 Clause (x) of sub-section (2) of the Income-tax Act, 1961 provides that where any person receives, in any previous year, from any  person or persons any sum of money, without consideration, the aggregate value of  which exceeds fifty thousand rupees, the whole of the aggregate value of such sum  shall be the income of the person receiving such sum. However, certain exceptions  have been provided in the clause for transaction specified therein - Clause (2) of section 17 of the Act, inter alia, provides the definition of  “perquisite”. 

In a press statement The Finance Ministry dated: 25.06.2021 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 FY 2019-20 and subsequent years .

Also in lieu of proving benefit to family members of such taxpayer, income-tax exemption  shall be provided to ex-gratia payment received by family members of a person from  the employer of such person or from other person on the death of the person on account of COVID-19 during FY 2019-20 and subsequent years. Also, as stated that the exemption shall be allowed without any limit for the amount received from the employer and the exemption shall be limited to ₹ 10 lakh in aggregate for the amount  received from any other persons.  

With an aim to provide the relief as stated in the press statement, as proposed to amend clause (2) of section 17 and to insert a new sub-clause in the proviso to state that any sum paid by the employer in respect of any expenditure actually incurred by  the employee on his medical treatment or treatment of any member of his family in  respect of any illness relating to COVID-19 subject to such conditions, as may be  notified by the Central Government, shall not be forming part of “perquisite”. 

Also proposed to amend the proviso to Clause (x) of sub-section (2) of  section 56 and insert two new clauses in the proviso so as to provide that:-

(i) any sum of money received by an individual, from any person, in respect of any expenditure actually incurred by him on his medical treatment or treatment of  any member of his family, in respect of any illness related to COVID-19 subject  to such conditions, as may be notified by the Central Government in this behalf,  shall not be the income of such person

(ii) any sum of money received by a member of the family of a deceased person,  from the employer of the deceased person (without limit), or from any other  person or persons to the extent that such sum or aggregate of such sums does  not exceed ten lakh rupees, where the cause of death of such person is illness relating to COVID-19 and the payment is, received within twelve months from  the date of death of such person, and subject to such other conditions, as may  be notified by the Central Government in this behalf, shall not be the income of  such person. 

Also proposed to provide that for the purpose of both of the said clauses,  “family” in relation to an individual shall have the same meaning as assigned to in the  Explanation 1 to clause (5) of section 10.  

These amendments will take effect retrospectively from 1st April, 2020 and will  accordingly apply in relation to the assessment year 2020-21 and subsequent assessment years.