Employer Liability in Long-Term Remote Work: Are There Tax Obligations or New Permissions Needed?

Understanding Employer Liability in Work-From-Home Arrangements

What does the poster actually mean by "employer liability" in a situation of continued WFH by most of his employees is not clear to me. In WFH, the place of work becomes the homes of the employees, thereby eliminating the rigor of physical supervision and reducing incidental expenses like power, water, etc., to the employer, as well as the physical exhaustion of everyday commuting for the employees. All these savings, if properly accounted for, would reduce the overall day-to-day expenses of the employer, thereby increasing his profit margin. But for this, I don't think that an employer is to incur any other kind of tax liability. This being an alternative arrangement necessitated by the statutory lockdown and its further continuance by properly observing the statutory conditions of working hours, weekly holidays, overtime work, etc., does not require new permission or approval, if any, from the State.

The employer is benefitted by WFH

Many expenditures of office nature will be cut down. Additional tax liability does not arise for the company. But employees need to be aware of certain tax issues which may crop up.

Taxation impact on employee emoluments

Salary and emoluments earned by an employee in India are taxable as per Indian tax laws. However, there are certain payments which are eligible as deductions for tax purposes. For instance, House Rent Allowance (HRA) is subject to deductions based on prescribed criteria. Some payments are also treated as tax-exempt up to prescribed limits, such as children's education allowance, etc. However, some of the payments may need to be studied in detail to gain insight into the purpose of payment and claim appropriate tax position while being compliant with the methods and documentation suggested as per the IT laws.

Additional allowances to meet expenses such as mobile phone to take official calls and internet expenses shall be treated as tax-exempt for employees. These are provided to conduct office work from a place away from the usual place of work but are essential to function or render services under the contract of employment, which are explicitly exempted.

On the other hand, allowances provided to employees for working from home could be taxable. During the pandemic, several employees have received additional benefits in the form of furniture and allowances. Some of them are discussed below:

Reimbursement of expenses to employees in relation to the purchase of furniture or chair at home for a work-desk may be treated as taxable if such an allowance is provided by the employer only to a limited grade of employees. Alternatively, if any employee receives a capped allowance to purchase the asset on his own, the same may be taxable in his hands in the absence of any specific exemption. In case of provision of furniture or chair by the employer to the employee, the same shall be treated as a perquisite in the hands of the employee as per the IT laws. This would be on account of 'use of an asset owned by the employer'. Hence, it becomes crucial for both employer and employee to understand the income tax ramifications beforehand.

Some employers have also extended their group medical insurance policies or have opted for wider coverage to help employees with their medical emergencies. Such benefit, being a general benefit to all employees, could be treated as non-taxable for employees.

With the change in the work culture, more clarity is also expected from the decision-making authorities (the Government and tax authorities), in terms of the taxability of such payments.

(extract from https://www.bdo.in/en-gb/news/2020/s...work-from-home for information purposes)

Changes in tax provisions can be anticipated as WFH becomes a part and parcel of corporate life. Even municipal taxes on house property may increase as home is used as office.