Though no major announcements or tax reliefs were offered to the taxpayers by Union Budget-2022, there were few significant amendments which are proposed in the Income Tax Law. Here are some of the key changes proposed in the Income Tax Act by Union Budget 2022:
Taxation of Crypto-Currency / Virtual Digital Assets:
Finally, the much expected provision has been introduced on taxation of Crypto-currency. Section 115BBH is proposed to be introduced in the Income Tax Act-1961 so as to provide for taxation of “Virtual Digital Assets” which will also include crypto-currency. It has been provided that any income from the transfer of any virtual digital asset shall be taxed at a flat rate of 30% & no deduction will be available towards any expenditure or allowance incurred while computing such income except for the cost of acquisition (COA). Further, loss from the transfer of any other digital asset will not be allowed to be set off against any other income. It has also been provided that if any virtual digital asset is provided as a gift, it will be taxed in the hands of the recipient.
To keep a trail of such transactions, this transaction has been subject to TDS @ 1% over and above the specified monetary threshold. It is also announced that the ITR forms will have a separate column for crypto income disclosure.
New concept of “Updated Returns”: At present, the income tax law allows the person to file the income tax return up to a maximum of nine months (subject to date extension power of the CBDT) from the end of the relevant financial year. There was no option to file or revise the return beyond this date even if there was genuine error or omission. Now, with a view to help taxpayers, the concept of “Updated Return” is proposed to be introduced. It is proposed that the taxpayers can now file an updated return within two years from the end of the relevant assessment year (AY). However, this updated return would be subject to the payment of additional tax of 25% or 50% along with interest.
Widening the net of Tax Deduction At Source (TDS): TDS is one of the major sources of collecting taxes by the Government. Every year, its scope is widened so as to keep the trail of the income transactions. Union Budget-2022 has proposed to widen it further so as to provide that if any benefit is received in cash or kind by any person and if the value exceeds Rs. 20,000/- in a year then it will be subject to the TDS provision. In short, various schemes like Gold coin, Gift, etc by the business houses (which may be insurance companies, Home appliances companies, etc) would be liable to do TDS on such gifts or benefits.
Reduction in the rate of Surcharge: For all categories of the taxpayers, the surcharge on Long-Term Capital Gains (LTCG) has been capped at 15%. For co-operative societies, the surcharge has been reduced from 12% to 7% for those with total income above Rs 1 crore, but less than Rs 10 crore. Further, in the case of association of persons (AOPs) or a consortium, that is formed by several companies for the purpose of executing a works contract, ,the surcharge rate has been capped at 15% as against 37%.
No Deduction towards Health and Education Cess: “Income Tax” is not a deductible expenditure while calculating taxable business income of the taxpayers. However, few courts have ruled that the Health & Education Cess is different from income tax and deduction was given towards such payment. Budget-2022 has finally sealed the law by providing with retrospective effect from 2005-06 that no deduction would be admissible even in respect of higher and education cess.
Alternate Minimum Tax for AOP: Alternate Minimum Tax (AMT) payable by cooperative societies has been brought down from 18.50% to 15%. It has been synchronized with the MAT of 15% for companies.
Concessional rate of Income Tax for Manufacturing Companies: The manufacturing companies are eligible for concessional tax rates of 15% U/s 115BAB. However, the last date for commencement of manufacturing or production was 31.03.2023. This has been extended by one more year to 31.03.2024.
Benefit to Start-ups: Startups have emerged as drivers of growth for the economy in the recent past. At present, Start-ups established before 31.03.2022 were given full tax exemption for 3 consecutive years out of ten years from incorporation. This period of incorporation of eligible start-ups has now been extended by one more year i.e., till 31.03.2023, for availing of such tax benefits.
Extending the benefit of higher National Pension Scheme (NPS) to State Government Employees: To bring state Government employees at par with Central government employees, Government has increased the tax deduction limit of employer’s contribution to the NPS from 10% to 14%.
Tax Relief for person with disability: Section 80DD provides for deduction towards any insurance policy taken out for a disabled dependent. Deduction is available only if the lump-sum payment or annuity is available to the disabled person on the death of the taxpayer. It is now proposed to extend the deduction with respect to such a scheme so as to provide that the benefit would be available if the lump-sum or annuity is receivable by the taxpayer upon attaining age of sixty years.
Undisclosed income during the Income Tax Raids: It is now provided that no deduction or set off of brought forward losses against undisclosed income detected during search and survey operations shall be available to the taxpayers.
Reducing Litigation in the Court:
To reduce repeated litigation between taxpayers and the IT department, the power to file an appeal by the income tax department has been deferred if the identical question of law is pending in either the Supreme Court or any of the High Courts.