Important Amendment in Direct Taxes vide union budget 2022

Income Tax Rates:

Tax rates remain same as last year.

Tax Rates for Individuals.

Tax Rates for Corporates:

New Scheme: 25%* plus surcharge & cess

Old Scheme: 30%* plus Surcharge & Cess

Tax Rates for Firm:

A partnership firm/ LLP is taxable at 30%*. There are no concessional rates introduced for firms / LLPs in new tax regime.

Surcharge on Long Term Capital Gain:

Finance Bill Proposed to charge surcharge @15% on all long-term capital gains earned by individuals and HUF. Kindly note that maximum surcharge applicable for individual is 37% if their taxable income exceeds an amount of Rs. 5 Crore. This will reduce the overall tax rate on Long Term Capital Gains from 28.49% to 23.92% resulting in savings upto 4.57%

Tax on Income of Certain New Manufacturing Domestic Company (115BAB):

Date of Commencement of manufacturing or production in a new domestic company extended from 31.03.2023 to 31.03.2024 for obtaining the concessional tax rate of 15%*.

*In addition to this Surcharge & Cess as applicable

Introduction of New Section 139 (8A) read with Section 140B relating to filling of updated return

New Provision introduced to enable the taxpayer to file updated return within 24 months from the end of the assessment year. This return can be filled only by paying an amount equal to 25% or 50% as additional tax on the tax & interest liable to be payable on additional income furnished by the taxpayer.

• Additional tax 25% is required to be payable if the taxpayer file updated return within 12 months from the end of the assessment year & additional tax 50 % is required to be payable if the taxpayer file updated return within 24 months from the end of the assessment year.

Who are not eligible to file this Return?

• Additional declaration results in increases the refundable amount of the taxpayer.
• In the case of search & survey conducted u/s 132/132,133/133A of the Act.
• Submission of return increases the loss of the taxpayer.
• Assessment has already been completed for the taxpayer or even in the case of notice issued u/s 90 /90A of the Act.

Also return filled u/s this section cannot be revised & no concession is available on penalty u/s 270A for non-filling of original return.

Also note that in case of defective return u/s 139(9), taxpayer cannot fill this return unless pay the additional tax of 25% or 50% as the case maybe.

Why we file this Return?

Only benefit is that taxpayer is not liable to prosecution u/s 276CC if return is filled u/s this section. Also, if any taxpayer identifies any Income in AIS after submission of original Return & last date for submission revised return u/s 139 (5) is expired.

Introduction of New Section u/s 158A of Income Tax Act to reduce litigation:

Section 158 provides that when a identical question of law is pending before the jurisdictional High Court u/s 260A or Supreme Court u/s 261 or in the case of special leave petition u/s 136 of the constitution of India, commissioner or Principal Commissioner may not any appeal at this stage to appellate authority u/s 260A(2) or u/s 253(2) as the case may be.

Procedure to apply this section??

• Commissioner or Principal Commissioner shall on the receipt of a communication shall direct the AO to make an application to the Appellate tribunal or Jurisdictional High Court as the case may be in the prescribed form with 60 days or 120 days stating that an appeal on the question of law arising in the relevant case may be filled when the question of law becomes final in other case.
• Commissioner or Principal Commissioner shall direct the Assessing officer to make in application only if the acceptance is received from the taxpayer in the relevant case & in case no acceptance is received the commissioner or Principal Commissioner shall proceed as per provision contain u/s 253 (2) or Section 260A (2) of the act.

Clarification of Section 14A in respect of Exempt Income :  

We all know that Section 14A read with Rule 8D create lot of litigation both for the Income Tax Department & for the Taxpayer, so in order to reduce the litigation , this budget insert an Explanation to Section 14A to clarify that notwithstanding anything contrary contain in the act, the provision of this section shall apply & deemed to be apply irrespective of the fact that exempt income has or has not accrued or arise during the previous year and the expenditure related to such exempt income incurred during the previous year.

This amendment is aimed to counter the settled decision of Hon’ble Supreme Court in the case of CIT v. Chettinad Logistics (P.) Ltd. (95 taxmann.com 250), PCIT v. Oil Industry Development Board (103 taxmann.com 326) and various other High Courts, that in the absence of any exempt income, disallowance under Section 14A of the IT Act cannot made.

So taxpayer require to calculate expenditure disallowed u/s 14A rule 8D irrespective of the fact that exempt income may or may not accrued in the current financial year.

Clarification on allowability of section 37 of Income Tax Act.

Union Budget proposed to insert two new explanation u/s 37(1) of the Income Tax Act in order to reduce the litigation & with an intention to make the legislation clear and make it free from any misinterpretation.

1. Any expenditure incurred outside India for the purpose of any offence which is prohibited under any law for the time being in force in India or outside India are disallowed u/s 37(1) of Income Tax Act

2. Any expenditure incurred for providing any benefit or perquisites to any person & acceptance of such perquisites or benefit is in violation of law or rule or regulation or guidelines as the case may be, are disallowed u/s 37(1) of Income Tax Act

Kindly note that CBDT vide its circular no 05/2012 dated 01.08.2012 noted that the Indian medical council in exercise of its power prohibit medical practioner and their professional associations from taking any gift, travel facility, any kind hospitality from giant pharmaceutical company. So, after the introduction of this section all such kind of expenditure of medical practioner are disallowed u/s 37 (1) of Income Tax Act.

Exemption in respect of amount received for medical treatment and on account of death due to COVID 2019.

CBDT vide press release dated 25.06.2021 announced that amount received by a taxpayer for medical treatment related to COVID 2019 is not taxable in hands of the taxpayer.

Since there is no such formal provision of the act for the applicability of this provision this will create lots of confusion in the minds of the taxpayer as well as for the employer.

Budget 2021 proposed to amend clause 2 of Section 17 & insert a new sub clause in the proviso to state that any sum paid by employer in respect of medical treatment related to COVID 2019 of the employee or any member of their family subject to such condition as may be prescribed shall not treated as a perquisite in the hands of the employee. This exemption shall be limited up to Rs. 10 Lacs.

Also, any sum of money received by a member of the family from the employer to the extent of such does not exceed an amount of Rs. 10 Lacs where the cause of the death of such person is illness relating to COVID 2019 and the payment is received within 12 months from the date of death of such person, shall not be treated as a income of the member of the family.

Introduction of New Section 194 R of Income Tax Act 1961.

Union budget proposed to introduce a new section u/s 194R of Income Tax Act to provide that any person responsible for providing to a resident, any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession, by such resident, shall, before providing such benefit or perquisite, as the case may be, to such resident, ensure that tax has been deducted in respect of such benefit or perquisite at the rate of ten per cent of the value or aggregate of value of such benefit or perquisite if aggregate value of such benefits or perquisites exceeds an amount of Rs. 20000/-

So every person is liable to deduct TDS @ 10% on the benefit or perquisites in respect of business or profession pass on to the agent if monetary value of such benefits or perquisites exceeds amount exceeding of Rs. 20000.

• This provision is applicable from 01.07.2022 & it is not applicable for individual/AOP having turnover less than 1 crore.
• Also, such benefit is taxable in hands of the agent u/s 28(iv) of Income Tax Act 1961.

Introduction of new section 239A of Income Tax Act 1961

Union budget proposed to introduce a new section u/s 239A of Income Tax Act to provide that every person who made the deduction of tax u/s 195 on any income other than interest paid to non-resident claims that such TDS is required to be deducted as per agreement or arrangement and when no deduction was required as per Act then taxpayer may file an application for refund such TDS before the AO.

• So, every taxpayer who has made the deduction of tax under such an agreement or arrangement and borne the tax liability, when no tax deduction was required, may file an application for refund of such tax deducted before the Assessing Officer.
• Such Taxpayer if not satisfied with the order of the Assessing Officer may file an appeal against such order before the Commissioner (Appeals), under section 246A of the Act.
• Section 239A need to be read with section 248 which states that in a case where, under an agreement or other arrangement, a person who has deducted tax on any income paid to a non-resident, other than interest, under section 195 of the Act, he may appeal to the Commissioner (Appeals) for a declaration that no tax was deductible on such income, if he claims that such tax is to be borne by him since no tax was required to be deducted on such income.
• Such appeal can be filed only after making payment of tax & also as per section 249 of the Act an appeal u/s 248 of the Act should be filed within 30 days of payment of TDS.

So as per the provisions of section 248 of the Act, a taxpayer has no option to approach before the Assessing Officer with such request. He has to necessarily enter the appellate process by filing an appeal before the Commissioner (Appeals). So, after introduction of section 239A taxpayer may first file their request to respective AO & If respective AO reject their application, then he may file appeal before Commissioner (Appeals).

Provisions of section 248 of the Act will not apply in cases where the date of payment of TDS is on or after 01.04.2022 since the provision of this section u/s 239A is applicable from 01.04.2022

Withdrawal of Concessional Rate of taxation on dividend income u/s 115BBD:

Union Budget abolished the provision of the section u/s 115BBD of Income Tax Act, provide that provision of this section shall not apply to any assessment year effective from AY 2023-24.

• Section 115BBD of the ACT provides concessional rate of Tax @ 15% on the dividend income received by an Indian Company from a Foreign Company in which Indian Company holds 26% or more.

Misc. Amendments:

1. Section 115BBH introduced in this budget to proposed that income from transfer of all digital currency is taxable @ 30% & no deduction in respect of any expenditures or allowances or set off of any loss shall be allowed. Also, this type of transaction is liable to deduct TDS u/s 194S @ 1%.

Section 2 (47A) Virtual digital asset” means––

(a) any information or code or number or token (not being Indian currency or foreign currency), generated through cryptographic means or otherwise, by whatever name called, providing a digital representation of value exchanged with or without consideration, with the promise or representation of having inherent value, or functions as a store of value or a unit of account including its use in any financial transaction or investment, but not limited to investment scheme; and can be transferred, stored or traded electronically.

(b) a non-fungible token or any other token of similar nature, by whatever name called.

(c) any other digital asset, as the Central Government may, by notification in the Official Gazette specify: Provided that the Central Government may, by notification in the Official Gazette, exclude any digital asset from the definition of virtual digital asset subject to such conditions as may be specified therein.

––For the purposes of this clause, ––

(a) “non-fungible token” means such digital asset as the Central Government may, by notification in the Official Gazette, specify; (b) the expressions “currency”, “foreign currency” and “Indian currency” shall have the same meanings as respectively assigned to them in clauses (h), (m) and (q) of section 2 of the Foreign Exchange Management Act, 1999.’.

2.  Faceless proceeding in case of ITAT, TP deferred till 31.03.2024

3. Unabsorbed depreciation and loss of the earlier years cannot be set off in case any income identified on Search or Seizure u/s 132 & 133 of Income Tax Act 1961.

4. The term tax includes and shall be deemed to have always included cess & surcharge by whatever name called. So, expenditure incurred on cess and surcharge cannot be claimed as a business expenditure.

This will resolve the disputes of many Assessee(s) as several number of appeals/applications are pending before various judicial authority for allowance of such deduction on basis of the principle laid by the Hon’ble Rajasthan High Court in the case of Chambal Fertilisers vs. JCIT (ITA 52 of 2018) and Hon’ble Bombay High Court in the case of Sesa Goa Limited vs. JCIT (117 taxmann.com 96).

This amendment is applicable from AY 2005-06 onwards.

5. Definition of specified person u/s 206AB and Section 20CCA propose to amend in order to reduce criteria of filling Income tax return from 2 years to 1 Year.

6. TDS u/s 194IA propose to amend in order to provide that TDS @ 1% is liable to be deducted on transfer of immoveable property on any such sum paid or credited or stump duty value of property whichever is higher.

7. Reduction in the value of goodwill from the block of the assets in accordance with 43(B)(ii)(6)(c) will be treated as a transfer as per section 50 Income Tax Act.

8. Limit of employer contribution to NPS proposed to enhance to 14% at par with central government employee. Previously it was limited to 10 % as per provision of Section 80CCD(2)(b) of Income Tax Act.