Last year the government announced that the money received by an individual from an employer, well-wisher, or relative for the treatment of Covid-19 would be exempt from income tax. The same income tax exemption was also notified in Budget 2022. The income tax exemption has been effective from financial year 2019-20 onwards. The income tax exemption was notified in Budget 2022.
It was alright if the beneficiary did not declare the ‘help money’ received in the income tax return as the exemption was granted retrospectively. The said exemption was granted under Section 56 of the Income Tax Act, 1961; the funds received under this section are not treated as income and hence are not required to be declared as such in the ITR.
As per the income tax laws, money received under this section is not considered as income and hence is not required to be reported to the income tax department. Now, the Central Board of Direct Taxes (CBDT) issued a notification on 5 August 2022, asking family members (of individuals who had passed away due to covid) who had received ex-gratia payment from the employer of the deceased or financial assistance from relatives and other well-wishers, to submit a form and specified proofs.
As per the notification, such family members are required to submit a form called ‘Form A’ to the assessing officer. Further, the CBDT has specified the conditions under which the above-mentioned income tax exemption can be claimed by the family members.
The conditions are as follows:
a) the death of the individual should be within six months from the date of testing positive or from the date of being clinically determined as a COVID-19 case, for which any sum of money has been received by the member of the family;
Further, the notification has asked the family members to keep the record of the following documents as well:
a) the COVID-19 positive report of the individual, or medical report if clinically determined to be COVID-19 positive through investigations in a hospital or an inpatient facility by a treating physician;
b) a medical report or death certificate issued by a medical practitioner or a Government civil registration office, in which it is stated that death of the person is related to coronavirus disease (COVID-19).
Form A must be submitted within 9 months from the end of the financial year in which money is received or 31 December 2022, whichever is later. Hence, if you have received the money in FY 2020-21 (which ended on 31 March 2021), then you have to submit the ‘Form-A’ by 31 December 2022 deadline.
If a family member does not submit the Form-A as defined by the CBDT by the deadline applicable to him/her, then such income tax exemption will not be available to the family member of an individual who has passed away due to Covid-19.
As per the press release, the income tax exemption is available without any limit for the amount received from the employer while the amount received from any other relatives and well-wishers shall be exempted up to Rs10 lakh only.
The income tax exemption for the limit of up to Rs 10 lakh is inclusive of money received for meeting the cost of treatment of covid-19 and for financial assistance to the family member of the deceased.
Form A to be submitted by an individual asks them to provide the following information:
Name, Address, PAN,
Relationship of the recipient with the deceased
Details of diagnosis of being positive for Covid-19 i.e., S.No./ Id No. of the medical report/ test report
Details of death due to COVID-19 and a medical report or death certificate issued by a medical practitioner or aGovernment civil registration office, in which it is stated that death is related to coronavirus disease (COVID-19) i.e., S.No./ Id No. of the medical report
Amount received from employer of the deceased and other person(s)
Name, address and PAN of the employer of the deceased:
Financial year in which amount has been received
Amount received from the employer
Name, address and PAN of the other person/persons
Financial year in which amount has been received
Amount received from other person/ persons
Total amount received (both from employer and other persons)
While submitting Form A, an individual is required to attach the documents mentioned above i.e., the covid report stating that the date of diagnosis and date of death is within 6 months as well as the medical report certifying that the death is due to covid-19.
The CBDT has now provided guidelines that such exemption shall be available where the death has happened within a period of 6 months from the date of the person being tested positive or clinically diagnosed as having Covid 19. The family is required to retain the relevant reports relating to the person being determined as Covid positive as well as death certificate clearly calling out the reason for death as Covid 19.
As a result of these changes, IAs, cannot accept fees through credit cards, will have to sign a 26-clause investor agreement, have to maintain physical record written & signed by client, telephone recording, emails, SMS messages and any other legally verifiable record for five years. IAs were already asked to record the suitability and rationale for every piece of advice given, sign them and store them for five years.
While these extensive and frequent changes, designed to strengthen the conduct of IAs are well-meaning, these have sharply increased compliance efforts and cost. We, being online advisors, find many of changes harder to implement, compared to advisors working in the physical space. We will have to have an army of advisors, administrative and tech staff to be compliant. If we do this, we will have to divert money to these areas and the cost of our service will double. We want to remain the least-cost service in the market to benefit more and more people. In the circumstances, we are forced to change our business model from “advisory” to “research”. This will mean the following:
What remains the same:
Recommendations on insurance, investment and Lion stocks, will continue as a part of the MAS premium subscription. Our strength has always been research and this will remain available to you through our recommendations.
The magazine and all textual content will remain as part of the service
We will have to suspend the restructuring tool.
The interactions in Ask / Handholding will offer investment advice but not specific to your situation. It will offer information on investment products and also clarify your doubts about various financial products. It will be a forum for information, not for advice. This will be implemented with immediate effect and our guidelines in Ask, reflect this now.
Over the next few weeks our site and our communication to you will reflect these and other additional changes.
We feel this will not affect you much in terms of what really matters in investing: knowing what to buy and when to buy. This is our edge and it will still be available to you.