Budget 2022 – Direct Tax

1.   Surcharge reduced on Long Term Capital Gains

– Surcharge on Long Term Capital Gains on any assets & Short Term Capital Gain on equity shares or units of equity oriented MF to be capped at 15% in place of 37% earlier. ( Section 111-A, 112 & 112-A )

2.   No change in Income Tax rate for Individuals, HUF, Firms, Companies etc.

3. Provision for  filing  ‘Updated  Income  Tax  returns’  within  2  years  from  end  of relevant Assessment

This is a kind of Amnesty scheme.

Propose a provision to file an updated return with payment of additional tax to correct any errors in returned income.

Assesses can declare income that may have been missed out previously.

New provision introduced to file updated ITR within 2 years in case of any omission or mistake.

Tax has to be paid along with interest and late fee in filing the delayed return or default of advance tax along with additional tax.

The additional tax shall be 25% of aggregate of tax and interest payable if return is furnished before completion of 12 months from the end of AY.

However this shall be 50% of aggregate of tax and interest payable if return is furnished after expiry of 12 months but before completion of 24 months from the end of AY.

However search & seizure, Survey cases, also cases of bullion , money , jewelry or valuable things seizure case etc are not eligible for this scheme.

4. Start-ups established before 31.03.2023 shall be eligible for Tax exemption now (earlier this was  31.03.2022; now extended by 1 year) (Section 80-IAC)

5. Last date for commencement of manufacturing activity for claiming lower tax regime under Section 115BAB to be 31.03.2024 now (earlier 31.03.2023; now extended by 1 year)

6.    Crypto currency (Virtual digital assets) to be taxed at 30 % special rate, no deduction allowed. (Section 115BBH)

• Online digital assets to be taxed @ 30%.

• No deductions or set off of

• Flat tax at 30% will be levied without any

• No deduction except cost of

• TDS at 1% to be deducted on transaction

• No deduction in respect of any expenditure or allowance shall be allowed while computing such income, except cost of acquisition

• Gift of Crypto to be taxed u/s 56(2)(x)

• Applicable from AY 2023-24

7. No repetitive appeals by Department for common question of laws if same question is pending before High Court or Supreme Court

8. Health and education cess not allowable as business expenditure u/s 37

9. No set off of losses against undisclosed income detected during search

10.    In case of an exempt income, the expenses relating thereto were disallowed by IT u/s 14-A.

However courts have held that no disallowance of expenses shall be made if there is no exempt income during the year.

Now these expenses shall be disallowed even no exempt income is earned during any year.

11. Certain taxpayers are claiming deduction under section 43B on account of conversion of interest payable on an existing loan into a debenture on the ground that such conversion is a constructive discharge of interest liability and, therefore, amounted to actual payment which has been upheld by several

Now conversion of interest payable under u/s 43B, into debenture or any other instrument by which liability to pay is deferred to a future date, shall not be deemed to have been actually paid & shall be allowed as deduction only on actual payment.

12.     Exemption of amount received for medical treatment and on account of death due to COVID-19

Any sum paid by the employer in respect of any expenditure actually incurred by the employee on his medical treatment or treatment of any member of his family in respect of any illness relating to COVID-19 subject to such conditions, as may be notified by the Central Government, shall not be forming part of “perquisite”.

Also (i) any sum of money received by an individual, from any person, in respect of any expenditure actually incurred by him on his medical treatment or treatment of any member of his family, in respect of any illness related to COVID-19  subject  to  such  conditions,  as  may  be  notified  by  the  Central Government in this behalf, shall not be the income of such person;

Further (ii) any sum of money received by a member of the family of a deceased person, from the employer of the deceased person (without limit), or from any other person or persons to the extent that such sum or aggregate of such sums does not exceed ten lakh rupees, where the cause of death of such person is illness relating to COVID-19 and the payment is, received within twelve months from the date of death of such person, shall not be the income of such person.

13.      Withdrawal of concessional rate of taxation on Foreign dividend income under section 115BBD

Concessional rate of tax of 15 % on the dividend income received by an Indian company from a foreign company in which the said Indian company holds 26 % or more in nominal value of equity shares (specified foreign company) is withdrawn from AY 2023-24.

14.    Provisions pertaining to bonus stripping and dividend stripping to be made applicable to securities and units (Section 94) Anti Avoidance

Now this is applicable to Securities, units of Infrastructure Investment Trust (InvIT) or Real Estate Investment Trust (REIT) or Alternative Investment Funds (AIFs)  also.

15.   Trust or institution are required to apply 85% of their income for the purposes specified. This shall now be allowed only on actual payment basis.

Any sum payable by any trust shall be considered as application of income in the previous year in which such sum is actually paid by it irrespective of the previous year in which the liability to pay such sum was incurred by such trust according to the method of accounting regularly employed by it.

Where during any previous year, any sum has been claimed to have been applied by such trust, such sum shall not be allowed as application in any subsequent previous year.

These amendments will take apply to the assessment year 2022-23 and subsequent  assessment  years.

16.  Reduction of Goodwill from block of assets to be considered as ‘transfer’

From the assessment year 2021-2022, goodwill of a business or profession is not considered as a depreciable asset and there would not be any depreciation on goodwill of a business or profession in any situation.

For the purposes of section 50 of the Act, reduction of the amount of goodwill of a business or profession, from the block of asset of section 43, shall be deemed to be transfer & will accordingly apply in relation to the assessment year 2021-22