Income Tax announcements in Budget Speech: Union Budget 2022

Finance Minister Smt. Nirmala Sitharaman has presented the Union Budget 2022-23 in the Parliament today on 1st Feb., 2022.

The Direct Tax Proposals are contained in the Part-B of the Budget Speech of the Finance Minister and is detailed hereunder.

The minister begins the Budget speech on tax proposals by giving thanks to the taxpayers for their contribution to the nation building.

She said, “I take this opportunity to thank all the taxpayers of our country who have contributed immensely and strengthened the hands of the government in helping their fellow citizens in this hour of need.”

She further emphasized that the government will continue the policy of a stable and predictable tax regime. This government intends to bring more tax reforms to establish a trustworthy tax regime, further simplify the tax system, promote voluntary compliance by taxpayers, and reduce litigation.

The following are the direct tax proposals announced in the Budget Speech 2022:

Introducing new ‘Updated return’

India is growing at an accelerated pace and people are undertaking multiple financial transactions. The Income Tax Department has established a robust framework of reporting of taxpayers' transactions. In this context, some taxpayers may realize that they have committed omissions or mistakes in correctly estimating their income for tax payment. To provide an opportunity to correct such errors, I am proposing a new provision permitting taxpayers to file an Updated Return on payment of additional tax. This updated return can be filed within two years from the end of the relevant assessment year.

Presently, if the department finds out that some income has been missed out by the assessee, it goes through a lengthy process of adjudication. Instead, with this proposal now, there will be a trust reposed in the taxpayers that will enable the assessee herself to declare the income that she may have missed out earlier while filing her return. Full details of the proposal are given in the Finance Bill. It is an affirmative step in the direction of voluntary tax compliance.

Reduced Alternate minimum tax rate and Surcharge for Cooperatives

Currently, cooperative societies are required to pay Alternate Minimum Tax at the rate of eighteen and one half per cent. However, companies pay the same at the rate of fifteen per cent. To provide a level playing field between co-operative societies and companies, I, propose to reduce this rate for the cooperative societies also to fifteen per cent.

I also propose to reduce the surcharge on co-operative societies from present 12 per cent to 7 per cent for those having total income of more than Rs. 1 crore and up to Rs. 10 crores.

This would help in enhancing the income of cooperative societies and its members who are mostly from rural and farming communities.

Tax relief to persons with disability

The parent or guardian of a differently abled person can take an insurance scheme for such person. The present law provides for deduction to the parent or guardian only if the lump sum payment or annuity is available to the differently abled person on the death of the subscriber i.e. parent or guardian.

There could be situations where differently abled dependants may need payment of annuity or lump sum amount even during the lifetime of their parents/guardians. I propose to thus allow the payment of annuity and lump sum amount to the differently abled dependent during the lifetime of parents/guardians, i.e., on parents/ guardians attaining the age of sixty years.

Parity between employees of State and Central government

At present, the Central Government contributes 14 per cent of the salary of its employee to the National Pension System (NPS) Tier-I. This is allowed as a deduction in computing the income of the employee.

However, such deduction is allowed only to the extent of 10 per cent of the salary in case of employees of the State government. To provide equal treatment to both Central and State government employees, I propose to increase the tax deduction limit from 10 per cent to 14 per cent on employer’s contribution to the NPS account of State Government employees as well. This would help in enhancing the social security benefits of the state government employees and bring them at par with central government employees.

Incentives for Start-ups

Start-ups have emerged as drivers of growth for our economy. Over the past few years, the country has seen a manifold increase in successful start-ups. Eligiblestart-ups established before 31.3.2022 had been provided a tax incentive for three consecutive years out of ten years from incorporation. In view of the Covid pandemic, I propose to extend the period of incorporation of the eligible start-up by one more year, that is, up to 31.03.2023 for providing such tax incentive.

Incentives for newly incorporated manufacturing entities under concessional tax regime

In an effort to establish a globally competitive business environment for certain domestic companies, a concessional tax regime of 15 per cent tax was introduced by our government for newly incorporated domestic manufacturing companies. I propose to extend the last date for commencement of manufacturing or production under section 115BAB by one year i.e. from 31st March, 2023 to 31st March, 2024.

Scheme for taxation of virtual digital assets

There has been a phenomenal increase in transactions in virtual digital assets. The magnitude and frequency of these transactions have made it imperative to provide for a specific tax regime. Accordingly, for the taxation of virtual digital assets, I propose to provide that any income from transfer of any virtual digital asset shall be taxed at the rate of 30 per cent.

• No deduction in respect of any expenditure or allowance shall be allowed while computing such income except cost of acquisition. Further, loss from transfer of virtual digital asset cannot be set off against any other income.

• Further, in order to capture the transaction details, I also propose to provide for TDS on payment made in relation to transfer of virtual digital asset at the rate of 1 per cent of such consideration above a monetary threshold.

• Gift of virtual digital asset is also proposed to be taxed in the hands of the recipient.

Litigation management to avoid repetitive appeals by the Department

It has been observed that a lot of time and resources are consumed in filing of appeals which involve identical issues. Taking forward our policy of sound litigation management, I propose to provide that, if a question of law in the case of an assessee is identical to a question of law which is pending in appeal before the jurisdictional High Court or the Supreme Court in any case, the filing of further appeal in the case of this assessee by the department shall be deferred till such question of law is decided by the jurisdictional High Court or the Supreme Court. This will greatly help in reducing the repeated litigation between taxpayers and the department.

Tax incentives to IFSC

Taking forward our efforts to further promote the IFSC, I hereby propose to provide that income of a non-resident from offshore derivative instruments, or over the counter derivatives issued by an offshore banking unit, income from royalty and interest on account of lease of ship and income received from portfolio management services in IFSC shall be exempt from tax, subject to specified conditions.

Rationalization of Surcharge

• In the globalized business world, there are several works contracts whose terms and conditions mandatorily require formation of a consortium. The members in the consortium are generally companies. In such cases, the income of these AOPs has to suffer a graded surcharge upto 37 per cent, which is a lot more than the surcharge on the individual companies. Accordingly, I propose to cap the Surcharge of these AOP’s at 15 per cent.

• Further, the long-term capital gains on listed equity shares, units etc. are liable to maximum surcharge of 15 per cent, while the other long term capital gains are subjected to a graded surcharge which goes up to 37 per cent. I propose to cap the surcharge on long term capital gains arising on transfer of any type of assets at 15 per cent. This step will give a boost to the start up community and along with my proposal on extending tax benefits to manufacturing companies and start ups re affirms our commitment to AtmaNirbhar Bharat.

Clarification in relation to ‘Health and Education cess’ as business expenditure

The income-tax is not an allowable expenditure for computation of business income. This includes tax as well as surcharges. The ‘Health and Education Cess’ is imposed as an additional surcharge on the taxpayer for funding specific government welfare programs. However, some courts have allowed ‘Health and education ‘cess’ as business expenditure, which is against the legislative intent. To reiterate the legislative intent, I propose to clarify that any surcharge or cess on income and profits is not allowable as business expenditure.

Deterrence against tax-evasion:

Presently, there is ambiguity regarding set off, of brought forward loss against undisclosed income detected in search operations. It has been observed that in many cases where undisclosed income or suppression of sales etc. is detected, payment of tax is avoided by setting off, of losses. In order to bring certainty and to increase deterrence among tax evaders, I propose to provide that no set off, of any loss shall be allowed against undisclosed income detected during search and survey operations.

Rationalizing TDS Provisions

It has been noticed that as a business promotion strategy, there is a tendency on businesses to pass on benefits to their agents. Such benefits are taxable in the hands of the agents. In order to track such transactions, I propose to provide for tax deduction by the person giving benefits, if the aggregate value of such benefits exceeds` 20,000 during the financial year.

A few other changes are being made the details of which are there in the Finance Bill.

Income Tax Diary