Tax Relief during COVID-19 US vs India vs the UK

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Covid impact on business

In our previous article about recent Taxation relief announced in the USA, we highlighted various measures declared by the Federal and State Governments giving relief on Tax matters to maintain liquidity in the hands of general public. Indian and UK Governments also has issued a Relief Measures to help their respective Economies survive the COVID-19 crisis and in this article, we will discuss some of the major Tax relief declared by them.

We will bring out a comparison between the Tax Measures and Relief taken by the US Government vis a vis Indian and UK Governments.

We would like to give a comparison point by point in the following manner:

Tax Due Dates extensions:

All Federal Income Tax Due Dates in the USA which are due between 15th April to 15th July 2020 are extended to 15th July 2020. It also includes all Time Sensitive Actions and tax filings. Federal Tax payments during such extended period will not attract any interest and penalty.

HM Revenue & Customs (HMRC) extended VAT due dates in United Kingdom, which are due between 20th March 2020 and 30th June 2020 to 31st March 2021, but it is optional and HMRC will not impose any penalties or interest on such later payment of tax. HMRC also extended Income Tax Payment date from 31st July 2020 to 31st January 2021.

Indian Tax Department also extended all Income Tax Due Dates falling between 20th March to 29th June 2020 to 30th June 2020 but this extension attracts concessional interest rate of 9% Per Annum as against existing interest rates.

Charitable Deductions:

As seen in our previous article Uncle Sam increased the limitations for Charitable Contributions in the following manner:

  • Individuals: AGI limitation of 60% increased to 100% of AGI
  • Corporations: 10% of Taxable Income increased to 25% of Taxable Income
  • Food Contribution limits increased from 15% to 25%

In the similar line in India one can claim 100 percent deduction for donation to PM CARES Fund. For claiming deduction in the return for FY 2019-20, Donation to PM CARES fund could be made till 30th June 2020. Indian Government has set up the Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund (PM CARES FUND) with the aim of funding the various relief measures to manage COVID-19.

Employee Centric Relief:

US Government has given following 3 major employee centric relief in the CARES Act:

  • Employee Retention Credit as a Refundable Tax Credit
  • Adjustment of Payroll Taxes against the emergency paid Sick Leave and emergency paid family and medical leave under the Families First Coronavirus Response Act (FFCRA).
  • Employers share of Payroll Taxes like FICA – Social Security and Medicare Taxes which are due between 27th March 2020 to 31st December 2020 can be paid in two instalments first on or before 31st December 2021 and balanced on or before 31st December 2022

UK Government announced following employee centric relief to help their citizens fight against this pandemic:

  • Statutory Sick Pay (SSP): Employees who self-isolate will be able to claim SSP and those who are self-isolating for someone else will also be able to claim SSP. Businesses with employees lesser than 250 as of 28th February 2020 will be able to reclaim this SSP expenditure from the Government up-to maximum of two weeks per employee.
  • Job Retention Scheme: Employers who are laying off employees temporarily due to this pandemic can apply for grant to HMRC and such a grant shall be used to retain those employees. Those business organizations who had PAYE scheme established before 19th March 2020 are eligible for applying for this grant which will cover up to 80% of the employee usual monthly wages costs up-to a maximum of UK pound 2500 per employee per calendar month plus employers NIC and minimum automatic enrolment employer pension contributions on that wage. This scheme was earlier applicable till 30th June 2020 but now it is extended till 31st October 2020.
  • Temporary Income Tax and National Insurance Exemption in respect of home office equipment purchased by the employee and reimbursed by the employer but subject to:
    • the equipment is obtained for the sole purpose of enabling the employee to work from home because of the coronavirus (COVID-19)
    • the provision of the equipment would have been exempt from income tax if it had been provided to the employee directly by the employer

Indian Government on the other side also tried giving some benefit to enterprises under Pradhan Mantri Garib Kalyan Package (PMGKP) in the following manner:

  • Enterprises having less than 100 workers and 90% of the employees having a salary of less than Rs. 15000 are provided with the financial help of payment of Employer and Employee Contribution of Provident Fund (PF) from the PMGKP scheme for the period from March 2020 to August 2020.
  • Enterprises not fulfilling the above criteria of the PMGKP scheme are supposed to pay Provident Fund at reduced rates of 10% instead of 12% for both Employer and Employee Contribution.

How far short-term extensions will help deal with a long-term crisis like this is a question to answer?

Retirement Plans Withdrawal:

US Government is allowing withdrawal up to $ 100,000 from Retirement Account without attracting withdrawal penalty of 10%.

In the similar line Indian Government also allowed employees to take non-refundable advance from their PF Account to the extent of lower of 75% of the amount in such account or 3 months wages.

UK Government gave a marginal relief of reducing the withdrawal charge from 25% to 20% in respect of withdrawal of funds from Lifetime ISA (LSA) that is reducing withdrawal charge by just 5%.

Refund related relief:

CARES Act in the USA allowed Corporate AMT generated in 2018 and 2019 as a refundable credit which will improve the liquidity position of the corporates.

Indian Government has introduced the scheme of Fast Track Income Tax Refunds which are due to Charitable Trust, noncorporate businesses and professions, proprietorships, partnerships, LLP, and Co-operatives. But why corporates are being deprived of this benefit is still a question to answer? And whether really the Refunds are issued or not on a fast-track mode for those covered under the scheme, only time can tell.

Direct Financial Assistance:

US Government is giving a direct assistant to American households of up-to $ 1200 ($ 2400 for joint filers) plus $ 500 for each qualifying child. This amount will be credited to their bank accounts directly which will bring money in their own hands to spend for their daily needs.

UK Government introduced the Self-Employment Income Support Scheme (SEISS). This scheme will allow self-employed individuals or a member of partnership who have been adversely affected by COVID-19 to claim taxable grant of 80% of average monthly trading profits, paid out in a single instalment covering 3 months and capped at UK Pound 7500. This grant need not be repaid but it will be subject to Income Tax and self-employed National Insurance. The aim of this scheme is to give cushion to self-employed during this crisis so that, they can continue to work or start a work or take up other employment.

Indian Government on the other hand has still not come out with any direct financial assistance so we need wait and see if they declare one.

Other Misc. Tax Relief:

US Government is giving following Misc. relief:

  • Removal of restriction on Net Operating Losses (NOLs) set by TCJA
  • Business Interest limitation of 30% of ATI is increased to 50% of ATI for Tax Year 2019 and 2020.
  • Removal of a technical glitch in the definition of Qualified Improvement Property (QIP) and the recovery period of QIP is reduced from 39 years to 15 years making it eligible for Bonus Depreciation.

UK Government is giving following Misc. relief:

  • HMRC will accept COVOD-19 as “a reasonable excuse” when appealing against penalty.
  • HMRC will allow a three-month extension for taxpayers to appeal, or seek a review of any HMRC decision arising in February onwards, where COVID-19 is cited as the reason

Indian Government is giving following Misc. relief:

  • Reduction of TDS and TCS rates by 25% for FY 2020-21 with effect from 14th May 2020 for all non-salaried payments to residents.
  • Extension of Tax Audit and Tax Filings Dates.
  • Income Tax Dispute Resolution Scheme named as Vivad se Vishwas Scheme extended till 31st December 2020.
  • Extension of date of commencement of operations of SEZ units for claiming deduction under Section 10AA of the Income Tax Act to June 30, 2020, for the units which received necessary approval by March 31, 2020.

As you can see all three countries’ tax relief compared above are trying to give relief in their own way and based on their own capacity. In the COVID-19 crisis which has brought us in such a grave uncertainty, there is surely no perfect economic policy any government can implement but even small relief may act as a ray of hope for some and give strength to sustain in this crisis.

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