Changes in Income Tax provisions in Union Budget 2022 – Decoded

Article contains update on Income Tax provisions in Union Budget 2022 related to Updation of ITR filed, Taxation of Virtual Digital Assets, AMT and Surcharge Rates reduced for Co-operative Societies, NPS deduction to State government employees, Tax Relief to the Persons with Disability, Tax Incentive Period for Start-ups Extended and LTCG to be subject to surcharge of only 15%.

Updation of ITR filed

Taxpayers will be allowed to file an updated return for errors or mistakes done in income tax returns. The updated return can be filed within two years from the end of the relevant assessment year.

Taxation of Virtual Digital Assets

A new Section 115 BBH has been proposed to be inserted which states that any income from the transfer of virtual digital assets shall be taxed at a flat rate of 30%. No deduction for any expenditure shall be allowed from the same, except the cost of acquisition of the asset.

It further specifies that loss arising from the transfer of virtual digital assets can neither be adjusted against any other income nor can it be carried forward to subsequent years.

A new Section 194S is also proposed which requires TDS at 1% to be deducted at the time of any transfer of virtual digital assets where the amount is above the specified threshold limit.

It is also proposed to fully tax the virtual digital assets received as gifts in the hands of the recipient.

AMT and Surcharge Rates reduced for Co-operative Societies

The Alternative Minimum Tax (AMT) has been proposed to be reduced to 15% of the adjusted total income from the current rate of 18.5% to provide parity in tax rates between co-operative societies and companies.

The surcharge has also been capped at 7% for the co-operative societies with total income above INR 1 crore and up to INR 10 crores.

NPS deduction to State government employees

The State government employees will now be able to claim deduction under Section 80CCD(2) for NPS contribution by the employer up to 14% of their basic salary and dearness allowance.

This is in line with the deduction available to the Central government employees under the said section.

Tax Relief to the Persons with Disability

Currently, Section 80DD provides a tax deduction to the parents or guardians of the disabled person who have paid any amount under the insurance scheme specified in the said section.

The said deduction is available only if such insurance scheme provides for the payment of annuity and lump sum amount to the differently-abled person on the death of the subscriber.

The section is proposed to be amended to include insurance schemes that allow the payment of annuity and lump sum amount to the differently-abled dependant during the lifetime of the parent and guardians on attaining their age of sixty years or more, and the payment or deposit to such scheme has been discontinued.

Tax Incentive Period for Start-ups Extended

The benefit of tax incentives under Section 80-IAC, which was available to the start-ups that were incorporated up to 31st March 2022, is proposed to be further extended to start-ups incorporated up to 31st March 2023.

LTCG to be subject to surcharge of only 15%

Long Term Capital Gains to be subject to surcharge of only 15% for all assets i.e. listed shares and Mutual Funds, as against the graded surcharge.

Surcharge and Cess not allowed as Business Expenditure

It has been clarified that the surcharge and cess on income and profits will not be allowed as business expenditure.