Mudra Compass

Though the Union Budget 2022 has no big bang announcement that can draw our eyes towards that, a few measures were taken such as, tax relief for those who invest in capital assets other than equity funds and listed stocks. While presenting the direct tax proposals, Finance Minister Nirmala Sitharaman thanked all taxpayers of the country who have contributed immensely and strengthened the hands of the government in helping their fellow citizens in this hour of need.

Some of the key changes which may impact individual taxpayers are: 

Introducing new ‘updated return’

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, a new provision has been proposed by 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. The filing of the updated return will be allowed only after payment of an amount equal to 25% or 50% as additional tax on the tax payable on the additional income furnished.

Tax relief to person with disability

The parent or guardian of a differently abled person can take an insurance scheme for such a 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.

The Budget has proposed to extend the deduction for such a scheme even when the payment of lump sum or annuity is provided to the differently-abled person during the lifetime of the parent/ guardian (after they attain the age of 60). 

Scheme for taxation for 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, it has been proposed to tax income from VDA at a flat rate of 30% without providing for any other deduction, except the cost of acquisition of such assets. Any loss from the transfer of VDA cannot be set off against any other income. Also, the gift of VDA is proposed to be taxed in the hands of the recipient. Further, in order to capture the transaction details, TDS provisions on the transfer of such assets have also been proposed.  

Rationalization of Surcharge

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. In order to address this anomaly, it has been proposed that the surcharge on all LTCG will be capped at 15%. 

Rationalizing TDS Provision

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.

Parity between employees of State and Central government

At present, the Central Government contributes 14 per cent of the salary of its employees 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 percent of the salary in case of employees of the State government. To provide equal treatment to both Central and State government employees, the budget has proposed to increase the tax deduction limit from 10 percent 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. Eligible start-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, the budget has proposed 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.