The Union Budget, 2022, was presented by Finance Minister Ms. Nirmala Sitharaman in the parliament on 1stFebruary, 2022. Like each year, this year also, a number of amendments have come up in the provisions of the Income Tax Law with the enactment of the Finance Act, 2022.
Here are the few
significant changes that the taxpayers should be aware of:
Taxation of
Digital Assets
An important
highlight of the Finance Bill, 2022 is the introduction of new provisions for
taxation of income from virtual digital assets (cryptocurrency, etc.) that will
be effective from 1stApril, 2023, which are as follows:
a) Gains arising
from the transfer of the digital assets would be taxed at a flat rate of 30%
(plus applicable surcharge and cess).
b) No deduction for
any expenditure (other than the cost of acquisition) shall be allowed to
calculate the income from digital assets. Further, no set-off of any loss shall
be allowed to the taxpayer from such income.
c) Gift of digital
assets would be taxable in the hands of recipients.
d) Payments made in
relation to the transfer of the digital assets will be subject to TDS at 1% of
such consideration above a certain threshold limit. This provision will become
effective from 1st July, 2022.
Introduction of
the concept of ‘Updated Return’
The Finance
Minister has introduced a new provision to enable the taxpayer to file an
updated return, giving him an opportunity to report additional income that he
may have missed inadvertently in the original tax return. While all taxpayers
have the option of revising their tax returns up to 31stDecember
following the relevant financial year, the updated return can be filed within a
period of two years from the end of the relevant assessment year (i.e., within
three years from the end of the relevant financial year). The introduction of
this provision is a step towards promoting voluntary reporting by the
taxpayers.
Tax relief to the
parents and guardians of the person with a disability
[This amendment
will take effect from 1stApril, 2023]
Presently, the
deduction to resident individuals and HUF under Section 80DD is allowed with
regard to any amount deposited under a scheme issued by LIC or any other
insurer for the maintenance of a dependant, being a person with a disability,
provided such scheme provides for payment of the annuity or lump sum for the
benefit of the disabled dependant only in case of death of the subscriber
(Parent or Guardian).
However, in some
situations, the person with disability may need payment of the annuity or lump
sum during the lifetime of the parents and guardians also. Thus, in order to
remove such genuine hardship, it is proposed that the parents or guardians can
claim such deduction even if the disabled dependent person claims the payment
of annuity or lump sum amount during their lifetime, i.e., on parents/guardians
attaining the age of 60 years.
Better litigation
management
In an attempt to
reduce the repeated litigation between taxpayers and the department, section
158AB has been inserted in the Act and has been provided that if a question of
law in an assessee’s case is identical to a question of law which is pending in
appeal before the Supreme Court or the jurisdictional High Court in any case,
the filing of a further appeal in case of this assessee by the department shall
be postponed till such question of law is resolved by the jurisdictional High
Court or the Supreme Court.
Increased NPS
Deduction Limit for State Government Employees
The Central
Government employees are allowed a deduction of up to 14 per cent of their
salary on account of the contribution made by the Central Government to their
National Pension Scheme Account. However, at present, such deduction is allowed
only to a maximum of 10 per cent of the salary in the case of the State
government employees.
To bring parity
between both Central and State government employees, the government has
proposed to increase the limit of tax deduction from 10 per cent to 14 per cent
on the contribution of the employer to the NPS account of State Government
employees as well retrospectively with effect from 1stApril, 2020.
Incentives to
Start-ups (Section 80-IAC)
Eligible
start-ups incorporated before 31stMarch, 2022 had been given the
benefit of tax exemption for three consecutive years out of ten years from the
year of incorporation under section 80-IAC. This period of incorporation of the
eligible start-ups has now been extended by one more year, i.e., till 31stMarch,
2023, to avail such tax incentives.
Incentives to
newly incorporated manufacturing entities (Section 115BAB)
The domestic
manufacturing companies set up after 1stOctober, 2019 that commenced
manufacturing or production before 31stMarch, 2023, had been
provided with the benefit of a concessional tax rate of 15% under section
115BAB. This period for commencement of manufacturing or production has now
been extended by one more year, i.e., till 31stMarch, 2024, to avail
the benefit of such concessional tax rate.
Reduced Alternate
Minimum Tax rate for Co-operative societies
Currently,
co-operative societies are liable to pay Alternate Minimum Tax at the rate of
18.5 per cent. However, companies are required to pay the same at the rate of
15 per cent. To cater a level playing field between co-operative societies and
companies, this rate for co-operative societies also has been reduced to
fifteen per cent.
Clarification on
the disallowance of Health and Education Cess
In the budget
speech, the Finance Minister clarified that any surcharge or cess imposed on
the taxpayer is not allowable as business expenditure. Accordingly, an
amendment has been made in section 40 of the Act to expressly convey that the
‘tax’ shall include any surcharge or cess on such tax and not be allowed as
business expenditure for computation of business income.
Deterrence
Against Tax-Evasion
In order to
increase dissuasion among tax evaders, section 79A has been inserted in the Act
to provide that no set-off of any loss shall be allowed against the undisclosed
income detected during search and survey operations.
Rationalization
of Surcharge
The surcharge
rate on long-term capital gain on transfer of any asset has now been capped at
15%. Earlier, the capping was applicable to long-term capital gains only from
listed equity shares, units, etc. This capping will help taxpayers with a
taxable income above Rs. 2 crores to save some taxes.
Also, for
co-operative societies, having total income above Rs. 1 crore, but less than
Rs. 10 crores, the surcharge has been reduced to 7 per cent from 12 per cent.
Further, the surcharge rate of the AOPs has been capped to 15%.
Exemption of
amounts received for Covid treatment or in the event of death due to Covid 19
In a press
release dated 25thJune, 2021, the Finance Ministry announced exemption
of payments received for Covid medical treatment or on the death of an
individual due to the illness related to Covid 19. These exemptions have now
been legislated with retrospective effect from 1stApril, 2020 by
making amendments under section 17 and section 56 of the Act. Such exempt
payments are as follows:
a) The amount
received by a taxpayer from an employer or any person for treatment of
Covid-19.
b) The amount
received by the family members of a person who lost his life due to Covid-19
from the employer of such deceased person or any other person.
It must be noted
that this exemption shall be allowed without any limit for the amount received
from the employer, whereas the exemption shall be limited to Rs. 10 lakhs in total
for the amount received from any other person.
It has been
clarified that such payment must be received within 12 months from the date of
death to qualify for the exemption.
Summing up
The objective of
the Union Budget 2022 regarding the Direct Taxes was to simplify the tax
system, promote voluntary compliance by taxpayers, and reduce litigation. The
clarity on taxation of virtual digital assets will help investors make the
right decisions.The introduction of the provision of updated return is a step
towards affirmative and voluntary reporting by taxpayers and relief against
penal provisions.
