Significant Amendments in the Provisions of Income Tax Act in Finance Bill, 2022

The Union Budget, 2022, was presented by Finance Minister Ms. Nirmala Sitharaman in the parliament on 1^stFebruary, 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 1^stApril, 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 1^st 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 31^stDecember 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 1^stApril, 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 1^stApril, 2020.

Incentives to Start-ups (Section 80-IAC)

Eligible start-ups incorporated before 31^stMarch, 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 31^stMarch, 2023, to avail such tax incentives.

Incentives to newly incorporated manufacturing entities (Section 115BAB)

The domestic manufacturing companies set up after 1^stOctober, 2019 that commenced manufacturing or production before 31^stMarch, 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 31^stMarch, 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 25^thJune, 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 1^stApril, 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.

In conclusion, the Union Budget 2022 brings significant changes to the Income Tax Law, affecting taxpayers in various ways. The introduction of taxation for digital assets, the concept of updated returns, tax relief for parents of disabled individuals, and better litigation management are notable amendments. Additionally, there are increased NPS deduction limits, incentives for startups and manufacturing entities, reduced alternate minimum tax rates for co-operative societies, clarification on disallowance of Health and Education Cess, deterrence against tax evasion, rationalization of surcharge, and exemption for amounts received for COVID-19 treatment or in the event of death. These changes aim to streamline taxation processes, promote voluntary reporting, and provide relief in specific situations. Taxpayers should stay informed and consult professionals to understand the implications of these amendments.

Stay informed and make the most of the latest tax changes! Contact us at info@manishanilgupta.com for expert advice and assistance with your tax planning and compliance needs.

Disclaimer: This article is meant purely for knowledge and educational purposes. It contains only general information and references to legal content. It is not legal advice, and should not be treated as such.