Sonic speed of hustling office goers on a Monday morning, catching a cab, chasing a bus or hopping on to a metro to reach office for uninterrupted long hours of meetings have undoubtedly transformed into a situation one cannot fathom, amidst the lockdown imposed due to infamous contagion of Covid-19. The latest fad of setting a new workplace in the comfort of one’s home is becoming a new norm in the industry. A tangible point to ponder is whether this policy of Work from Home (WFH) is just a transitory aspect or can an element of permanency be added to it in the wake of technological advancements. While tech enterprises in the Silicon Valley such as Twitter, Facebook and many others announced it a ‘forever’ policy, corporations of the likes of Morgan Stanley and Barclays hinted at the notion of mass employment in a single space to be a policy of history. Indian companies are following suit with Infosys mulling over the idea of 50 percent employees working from home even after normalcy is restored. Indian IT/ ITeS behemoths like TCS made a vision statement to move to 75 percent WFH by 2025, while several others evaluating the permanent WFH framework from a business feasibility and organisation cultural change standpoint.
Strategizing the implementation of such an overhauling employee work policy in India for a foreseeable time requires various business considerations and regulatory hurdles to be factored in, especially for IT/ ITeS units in SEZs and STPIs. WFH has been perceived as a restricted privilege to businesses in India that is used with specific conditions only during extra-ordinary times such as Covid19 or as mentioned under SEZ rules. Especially in case of SEZ units, this has been subject to multiple interpretations covered under various circulars and finally made part of SEZ rules. Despite the fact that employees of IT/ ITeS units in SEZs may be entitled to WFH, the duration of such restricted privilege, even in a contingency scenario, is not apparent and tagged with underlying conditions such project mapping to SEZ unit, provision of secured virtual private network or virtual desktop infrastructure and most importantly ensuring export of services from the unit itself. The rules are not much different when it comes to units registered with STPI. While the permissible duration of WFH does not find place in the Handbook of Procedures 2015-21 of FTP, a specific authorization is required stipulating such spell along with other conditions similar to those for SEZ units. Instructions issued by SEZ and STPI authorities to enable WFH during lock-down period were meant only for a transitory period of work from outside. Regulatory provisions concerning WFH as mentioned in FTP and SEZ rules essentially apply to STPI and SEZ units only and a DTA unit does not seem to have any obligation to follow the same.
The foundation of permanent WFH policy wobbles in light of SEZ Act and STPI regulations, not permitting such a business stratagem. Permanent WFH, being an unchartered territory, units operating in STPI may engage in multi-fold steps beginning with initiating discussions with nodal heads on long term approach, seeking clarifications from DGFT by filing suitable forms and applying for relief before the policy relaxation committee. Units in SEZ may follow a similar suit by seeking relaxations from Authorised officer, Development Commissioner or the Board of Approval. Considering the current situation of the economy, it is expected that the Government would reasonably accede to such requests from the industry at large to advance momentum of recovery. In order to put a detailed regulatory framework, amendments in FTP and SEZ Act would be required to align them with the emerging needs of the industry.
Provision of infrastructure to employees plays a vital role in success of such unprecedented program. Although assets such as laptop, computer, monitor, docking station could be procured centrally and allocated to employees, the issue lies with other necessary assets required to bring the work environment to home such as furniture, computer accessories and other small consumables. While one-time cash allowance route brings challenge of capitalization along with tracking the use of assets and retrieving them from employees on separation, central procurement of assets imposes logistical challenges. A closely monitored reimbursement model may be the first step towards achieving the desired results. While juggling with various regulations, withholding tax implications on these benefits needs to be factored-in while designing new policies. Current perquisite tax rules do not favour use of movable assets other than laptops and computers by employees for official purposes and it would be interesting to see as to how the industry forms a view around this aspect considering the underlying intent of usage of such assets for official purposes at employee’s residence.
Income tax holiday benefits claimed by SEZ units, specifically those in the early years of claim, may be put at risk, if the prescribed rules are not followed with utmost caution. With all eyes on emerging permanent WFH trend, income tax holiday claims are likely to go through in-depth scrutiny, thereby increasing risks and complexities of tax audits. Absence of guidance and judicial precedence would make this examination highly fact specific. Demonstration of mechanism of service delivery, thorough flowcharts and networking diagrams could possibly come to rescue. Robust internal IT systems could be inducted to maintain logs and network communication models to ensure compliance with SEZ rules. Impact on financial projections submitted at the time of unit set-up needs to be kept in mind. Transfer pricing complications can, come in too, with respect to permanent WFH, if it brings in change of Function, Assets and Risk analysis. Transfer pricing implications with possibility of pressure on mark-up cannot be ruled out, say for instance, in scenarios where a related party puts additional indemnification clauses in service delivery agreement to ensure data protection or confidentiality on account of permanent WFH, which could lead to a potential change in risk profile. It may be contended during audits that as changed WFH model leads an assumption of additional risk quotient, the service provider is entitled for an added compensation in terms of a higher mark-up. The decisive criteria would actually be to see as to “what-is-done” rather than “how-is-it-done” when analyzing the entire value chain in pre and post permanent WFH scenario. Expenses incurred to facilitate permanent WFH qualifying as business expenses for tax purposes is also likely to be disputed in view of existence of personal element. Where such expenses are reasonable, benchmarked and supported by business reasons, the case may be defendable. The manner of export of services under different regulations pose an enormous challenge concurrently. While STPI regulations stipulate export of software through satellite data communication link, SEZ Act requires secured connectivity, for instance, virtual private network or virtual desktop infrastructure. Entities operating under OSP guidelines are required to operate with Service Providers Provisioned VPN (PPVPN) under WFH situation with pre-defined locations.
Change is the only constant and Covid-19 has forced us to re-think the way we work and lead our lives. As the world embraces the changing global and economic landscape, adaptability and flexibility are paramount to establish a new normal. The Government will have to actively engage with stakeholders to develop a blueprint of legislative changes required to pave the way for transformation that could keep up with disruptive trends. Industry representatives have recognized that WFH culture is here to stay. Apart from SEZ Act and STPI regulations, there is an immediate requirement to re-look at income tax law, state labour laws and guidelines issued by the Department of Telecoms for orchestrating the permanent WFH policy at a large scale.
Suraj Nangia is Partner, Nangia Andersen LLP and Sandeep Jhunjhunwala, is Partner, Nangia Andersen LLP