Tax planning as the word suggests, is a smart way of saving your taxes by
incorporating the relevant expenditures to your book of accounts and getting tax
benefits out of such planning . It is a very common phrase that "modern problems
require modern solutions" and this statement has become even more relevant
during the times of the Covid -19 pandemic which left the world awestruck due to
its massive impact on the lifestyles of people.
While the pandemic took a huge
toll on the economy of the world at large it also added a new way of working to
people's life and that is work from home. Even though this concept is relatively
new to most of us in India , this has been tried and tested previously by some
countries around the globe to ascertain the degree of productivity that it
brings to the table. This concept has been tried by AT&T in 1994 where it let
32,000 workers work from home and this practice has proved beneficial for
them in terms of cash flow and has also increased the productivity of their
While this practice has benefited companies in the United States, the
outcome of this sort of a set up is fairly welcomed by some of the people in
India as well, these people have been adapting similar practices where their
place of residence is their office as well. Many people who engage in
consultancy and similar sort of business activities like doctors, lawyers,
Chartered Accountants choreographers etc. use their home premise as their
offices because of the comfort and the time it saves for them.
This paper will take help of one such example where a celebrity choreographer
incorporated such practice and saved her taxes at the ease of her residence and
moving on further, this paper will discuss the work from home provisions which
are present in other jurisdictions and try to analyze whether these practices
could prove to be useful in a long-term and what possible outcome it may bring.
Farah Khan's Case
Farah Khan who was the assessee in the case, is a famous Indian director and
celebrity choreographer. She owns 6 flats in Mumbai which she uses as residence
cum office premises, she has bifurcated her flats as being used for office and
In the assessment year 2013-14, the assessee claimed
deduction of expenditure under different heads such as: Interest on office
loan, depreciation on office premises, depreciation on furniture and fixtures,
society charges, electricity bills (50% since half of the area was being used as
office) etc. which amounted to INR. 155.74 lacs.
The interest on loan which to acquire office premises was claimed under section
36(1)(iii) of the Income Tax Act 1961-2021 (hereinafter referred to as 'the
act') which allows for deductions with respect to the amount of interest paid on
the loan for acquiring an asset for business or professional use.
The claim of
depreciation was made under section 32 of the act wherein section 32 (1)(i)
allows for depreciation on furniture (for office use) to be deducted while
calculating the income. The society charges and electricity charges were claimed
under section 37(1) of the act. The case of assessee was discussed at length and
after the assessee was able to come up with documentary evidence which could
clearly ascertain the validity of her claims pertaining to the usage of the area
in question for office use, the claim was finally accepted by the tribunal.
The learned court in this case relied on the following cases and principles:
- Rule of Consistency:
The rule states that a taxpayer be true to any
representations made at the time of their tax return. If these representations
end up differing, then there is a doubt casted on the substance of the labels
affixed to the transaction and since the assessee has claimed deductions under
the same heads in previous financial years by the same court it is well within
the court's power to allow the same in the concerned year as well.
- Block of Assets Rule:
In ACIT v. M/s Krystal Colloids Private Ltd.,
the Mumbai Tribunal held that once an asset is included in a block of assets and
depreciation is awarded on that block, following years cannot be refused on the
basis that one of the assets is not used by the assessee in some of the years.
The term "user" of assets must refer to the block as a whole, not to an
- CIT V Western Outdoor Interactive Pvt. Ltd:
It was decided that if a
benefit or deduction is available for a specific number of years after meeting
certain conditions and according to the Act, then the AO cannot withdraw the
relief for subsequent assessment years without withdrawing or setting aside the
relief granted for the first AY in which claim was made and accepted.
Work From Home In India
Owing to the circumstances that the pandemic brought forth in the world, Indian
people who work in offices also expected some sort of tax relief from the union
budget 2021 regarding work from home, since they were incurring extra costs such
as that of electricity, WI-FI, snacks, and fitness centers which in some cases
the office would have provided them in case of a physical office.
But no such
relief pertaining to deductions in tax for salaried employees has been granted
yet. In India if someone wants to make an office cum premise, then they have to
follow certain steps like taking a permit from Residence welfare association or
if the flat is rented, one needs the approval of the landlord. But in most of
the professions where one provides their expertise in a matter like that of a
lawyer, doctor or C.A. or even Yoga classes, such activities are not deemed as
commercial and till now the definition of commercial activities from home have
not been structured in a way to fit the present day definition and usage of such
And the there is a grey area in the Indian Income Tax regarding the work
from home provisions which clearly mention and classify the scope of online work
mode where an employee is sitting in their home office and working for a firm in
abroad or where a foreign company has just appointed a consultant in India to
assess the market and that employee is working from home.
Germany- German employees who incur costs that aren't reimbursed but are
properly documented and necessary can claim them as a deduction, including
professional dues, work equipment, and even business literature. Examples of
these expenses include: Workers who have changed to working from home will be
able to deduct 5 Euros for each calendar day they work from home in 2020-2021
and 2021-2022. However, this deduction is limited to 600 Euros per calendar year
and can only be claimed for 120 days.
In the United States, self-employed individuals who effectively
use their house for business purposes can deduct any expenses made for the
purpose of the business, including interest on the mortgage, rent, depreciation,
office supplies, and any money spent on repairs. However, it is critical to
highlight that this portion of their home must be used as their primary place of
business 'regularly and exclusively.'
It's worth noting that the American Federal Tax Code allowed employees to lower
their tax liability on their income by deducting all costs and expenses
associated with operating their office/residence and any other employee expenses
not reimbursed. This, however, lasted only until the Tax Cuts and Jobs Act of
2017 took effect.
In the event of a taxpayer who is self-employed and works from
home in the United Kingdom, he may be entitled to claim a percentage of expenses
incurred by him, such as power charges, mortgage interest or rent on the
property, internet expenses, and so on. Additionally, the taxpayer would need to
determine and implement a legitimate manner of dividing the expense, for
example, he would need to demonstrate the expense incurred for business reasons
while working from home.
Employees may deduct additional residential expenses such as energy, water, and
internet charges if they work frequently and regularly from their home.
Their tax rates are as follows:
- �6 per week, effective April 6, 2020; however, it would be �4 per week for
earlier Assessment Years. They would, however, be forced to keep track of
any additional costs or expenditures.
- Alternatively, they can claim the precise amount of the additional costs
they incur on a weekly basis, but they must keep track of and provide
evidence of the same in the form of receipts or bills.
The Australian government permits taxpayers to claim deductions for
costs incurred in the course of their employment. However, the employee must be
working from his or her home residence in order to carry out and fulfil his or
her occupational duties and responsibilities, which does not include performing
minimal functions such as answering calls or responding to emails, and they must
be incurring additional expenses as a result of working from home.
Numerous methods for calculating such claims include the following:
- Fixed Rate Method:
Allows taxpayers to claim 52 cents for each hour worked
from home. This is done to compensate for the cost of their office/home
furniture, additional power and gas prices for controlling the room temperature
and lighting, and maintaining the office/home, among other things.
Expenses like as internet charges, stationery, computer consumables, and
depreciation on office equipment such as laptops may also be deducted in
addition to the 52 cents maximum.
- Actual Cost Method:
Allows taxpayers to claim the actual cost of costs
incurred purely as a result of working from home, such as depreciating assets,
internet charges, electricity charges, and stationery.
Additionally, with the commencement of the Covid-19 Pandemic, the government
provided taxpayers with a "Shortcut Method" that, while transitory in nature,
allows taxpayers to claim up to 80 cents for each hour worked from home.
Working from home is a convenient and productive way of working which has become
the need of the hour due to the prevailing situation of pandemic and even the
rapid changing technology which enables anyone to remotely work on a shared
document with a lot of other people or have meetings anywhere making even a
beach look like an office by simply adding a background on an app, but this
concept is something that is not yet fully recognized with respect to the
taxation laws in India unlike the other countries.
The need to create laws governing such a format of business is crucial as it
would pave a way for the tax base being wider by including more people under the
ambit of it and at the same time people can use the deductions for their
benefit. There are chances that people will avoid taxes by using the work from
home laws as they might just use the space for office and other purposes,
deriving unfair advantage of the law, but merely because of that factor the
changes in this law should not be ignored.
The case of Farah Khan has given a new ray of hope for people working from home
as they will be able to now use their premises as they were using before but
still derive benefits out of that setting it would not only help in increasing
the productivity of people working from home as pointed out in the AT&T case
study, but it will also reduce the traffic on roads and curb pollution if people
can avoid going to offices when they can do the same thing from home.
This would eventually shift many offices to a remote working model such as call
centers where physical contact is not required which in turn can help in solving
the problem of space in the market as the offices will be reduced in terms of
size and there would be more of free space in the market leading to somewhat
affordable real estate.
- Mahlon Apgar, 'The Alternative Workplace: Changing Where And How People
Work'  Harvard Business review
- Mumbai vs M/S Farah Khan  Income Tax Appellate Tribunal - Mumbai,
Acit Circle-16(1) (Income Tax Appellate Tribunal - Mumbai).
- Mumbai vs Krystal Colloids PLtd  Income Tax Appellate Tribunal -
Mumbai, Asst Cit 15(2)(1) (Income Tax Appellate Tribunal - Mumbai).
- Mahlon Apgar, 'The Alternative Workplace: Changing Where And How People
Work'  Harvard Business review