The President has given assent on 31 March 2022, to the Finance Bill, 2022 passed by the Parliament with certain amendments. The key Direct Tax Amendments are summarized as under:

KEY AMENDMENTS – DIRECT TAX

SECTION 2(12A): DEFINITION OF “BOOKS OR BOOKS OF ACCOUNT”

SECTION Amendments as introduced by The Finance Bill, 2022 on 1 February 2022 Amendments as passed by The Finance Act, 2022
Definition of “books or books of account”

[Amendment to section 2(12A)]

– As per clause 12(A), books or books of account includes ledgers, day books, cash books, account books and other books, whether kept in written form or as print outs of data stored in a floppy, disc, tape, or any other form of electro-magnetic storage device.

– The words in the electronic form or in the digital form are added after the terms in written form or as print outs of data in the definition of books or books of account under section 2(12A).

– This amendment has been brought about to include all records even in digital form such as those maintained using block chain technology, etc.

SECTION 10: INCOME EXEMPT FOR TRUSTS

SECTION Amendments as introduced by The Finance Bill, 2022 on 1 February 2022

Amendments as passed by The Finance Act, 2022

Income exempt for trusts

[Amendment to Section 10]

Amendment to fifteenth proviso

Amendment to nineteenth proviso

– As per section 10(23C), any income received by a fund or institution established for charitable purposes (approved by the prescribed Authority) or a trust or education wholly for religious or charitable purposes shall be exempt from the provisions of the Act.

– This clause has been amended to also include the words provisionally approved. Thus, the scope of the said sub-section has been extended to funds/institutions which have also been granted provisional approval.

– Consequently, even provisional approval granted to an institution, fund, etc., can now be withdrawn.

– Further where any such fund or institution is notified under section 10(46), the approval or provisional approval granted to the fund or institution shall become inoperative from the date of the notification to the body under the said section.

Income exempt for trusts

[Amendment to Section 10]

– Amendment passed by the Finance Bill, 2022 also provides that where the income of any fund or institution referred to in clauses (iv) to (via) of section 10(23C) has been applied for the benefit of any specified persons defined under section 13(3), such income or property shall be deemed to be the income of such person of the previous year in which it is applied.

– Specified persons under section 13(3) include-

  • the author of the trust or founder of the institution
  • any person who has made a substantial contribution to the trust or institution in excess of INR 50,000
  • any trustee of the trust or manager of the institution
  • any relative of any such author, founder, person, member, trustee or manager
  • any concern in which the above-mentioned persons have a substantial interest.

– For the words, such person’, the words such fund or institution or trust or university or other educational institution or hospital or other medical institution is substituted.

– Thus, the application of the income by the fund, trust, etc., for the benefit of the persons specified in section 13(3), will be deemed to be the income of such fund, trust, etc., of previous year in which it is so applied.

SECTION 10: INCOMES NOT INCLUDED IN TOTAL INCOME PERTAINING TO INTERNATIONAL FINANCIAL SERVICE CENTER (IFSC)

SECTION Amendments as introduced by The Finance Bill, 2022 on 1 February 2022 Amendments as passed by The Finance Act, 2022
Incomes not included in total income pertaining to International Financial Service Center (IFSC)

[Amendment to Section 10]

– Section 10(4D) provides that specified funds shall be eligible to claim exemption with respect to income accrued or arisen or received by it which is attributable to units held by a non-resident (not being a PE in India) or to the investment division of an offshore banking unit.

– Such exemption is available in respect of income from transfer of a capital asset as referred to in section 47(viiab) on a recognised stock exchange in an IFSC, securities (other than shares of companies resident in India) and income from securities issued by a non-resident where such income is not deemed to accrue or arise in India and securitization trusts (chargeable under Profits under Business or Profession).

– Section 10(4D) has been amended to provide for a situation where a person, being a non-resident in the previous year in which the units were issued, becomes a resident during any subsequent previous year.

Incomes not included in total income pertaining to International Financial Service Center (IFSC)

[Amendment to Section 10]

– In such a situation, the provisions for income exclusion under section 10(4D) shall continue to apply to the specified fund, provided that the aggregate value and the number of the units held by such resident does not exceed 5% of the total value and number of the units issued, and such other prescribed criteria are satisfied.

SECTION 56: INCOME FROM OTHER SOURCES

SECTION Amendments as introduced by The Finance Bill, 2022 on 1 February 2022 Amendments as passed by The Finance Act, 2022
Income from other sources

[Amendment to Section 56]

– Section 56(2)(x)(c) provides that when a person receives gifts or acquires any immoveable property or specified moveable assets either without consideration or inadequate consideration, the aggregate fair market value of the property being more than INR 50,000 or received for a consideration which is lower than the fair market value by more than INR 50,000, shall be taxable in the hands of the recipient under income from other sources.

– Provided that the provisions of the above section shall not apply to sum of money or property received from a trust or institution, etc., registered under section 10(23C), 12A or section 12AA or section 12AB.

– A second proviso has been inserted to section 56(2)(x)(c), it provides that the exemptions under the first proviso to section 56(2)(x)(c) in respect of receipt of sum of money or property from a trust or an educational institution referred above shall not apply if the property or money has been received by the persons referred to un-der section 13(3).

Income from other sources

[Amendment to Section 56]

– The persons defined under section 13(3) include the author or founder of the trust or institution, a person with significant contribution exceeding INR 50,000, any trustee of the trust or any relative of the above-mentioned persons or any concern in which such person has substantial interest.

SECTION 115BBH: TAX ON INCOME FROM DIGITAL VIRTUAL ASSETS

SECTION Amendments as introduced by The Finance Bill, 2022 on 1 February 2022 Amendments as passed by The Finance Act, 2022
Tax on income from virtual digital assets

[Amendment to Section 115BBH]

– As per the newly introduced section 115BBH of the Income Tax Act, the income in respect of transfer of a virtual digital asset in the hands of the as-sessee shall be taxed at a flat rate of 30% without the benefit of any deductions except the cost of acquisition or set off of losses.

– Where the total income of an assessee includes any income from the transfer of any virtual digital asset, the income-tax payable shall be the aggregate of:

(a) the amount of income-tax calculated on the income from transfer of such virtual digital asset at the rate of thirty per cent.; and

(b) the amount of income-tax with which the assessee would have been chargeable, had the total income of the assessee been reduced by the income referred to in clause (a).

– After the words “asset”, the words “notwithstanding anything contained in any other provision of this Act” have been added implying that the sec-tions of 115BBH override any other provisions of the Act governing the same income.

– Thus, income from transfer of virtual digital assets shall be computed and taxed as per section 115BBH, though such income may be taxable under other heads of in-come.

– Further, section 115BBH(2) has been amended to provide that in computing income under this section, the cost of acquisition if any is to be deducted. Thus, income from virtual digital assets shall be computed even if the cost of acquisition is Nil or cannot be computed

– Further the scope of virtual digital assets has been clarified to include all forms of digital assets whether capital or not.

Tax on income from virtual digital assets

[Amendment to Section 115BBH]

– It has been clarified that no set off of losses under any provision of the Act shall be allowed including computing income under the said section for different classes of virtual digital assets. The word other has been omitted.

– Further, a new sub section (3) has been inserted which states that the definition of transfer as stated in section 2(47) is to be applied for this section, whether the virtual digital assets are held as capital assets or not.

SECTION 139: FURNISHING OF RETURN OF INCOME

SECTION Amendments as introduced by The Finance Bill, 2022 on 1 February 2022 Amendments as passed by The Finance Act, 2022
Furnishing of return of income

[Amendment to Section 139]

– Section 139 provides for the circumstances and process for filing of returns by individuals and other assesses.

– Section 139 has been amended to provide that any assessee, irrespective of the fact whether he/she has filed a return under the respective provisions of the section, may opt to furnish an updated return under the subsection 8A in respect of the income under which he/she is assessable under the Act, for the previous year relevant to such assessment year. However, such a submission is permitted only within 24 months from the end of the relevant assessment year pertaining to the previous year.

– Updated return could not be filed in respect of cases where search is initiated, survey is conducted or requisition is made, for that assessment year and two assessment years preceding such assessment year.

– The words two assessment years have been substituted and the words ‘any assessment year’ are inserted. Thus, in such cases the assessee cannot file updated return of income for any of the preceding assessment years.

– Further wherein a return of loss is filed and verified under sub section (1) in respect of losses sustained in any previous year, the assessee shall be permitted such up-dated return provided the updated return is a return of income. The words used in the amendment are ‘return of income’, probably what it means is a return of income which determines income chargeable to tax.

Furnishing of return of income

[Amendment to Section 139]

– Further the provisions of subsection 8A shall not apply where the return has an effect of generating a loss, decreasing the tax liability or generating or increasing the refund for the assessee on the basis of the return/s filed under subsections (1), (4) or (5), or the return is filed in response to a search initiated under section 132, requisition under section 132A, survey under section 133A or a notice issued under the above mentioned sections, for the assessment year relevant to the previous year in which the search or requisition is initiated and/or two assessment years preceding it.

– In addition, filing of an updated return is not permitted where any proceeding for assessment or reassessment or re-computation of income is pending or has been completed for the relevant AY, information under section 90/90A has been received in respect of the said assessee or prosecution proceedings under Chapter XXII have been initiated against him or her.

– Section 139 has also been amended to provide that wherein any loss carried forward under Chapter VI or unabsorbed depreciation carried forward under section 32 or tax credit carried forward under section 115JAA and 115JD is to be reduced for any subsequent year as a result of filing an updated return under section 139(8A) for a previous year, an updated return shall also be furnished for each such subsequent previous year (for which the impact of the reduction is effect-ed).

SECTION 153(1): TIME LIMIT FOR COMPLETION OF ASSESSMENT, REASSESSMENT AND RE-COMPUTATION

SECTION Amendments as introduced by The Finance Bill, 2022 on 1 February 2022 Amendments as passed by The Finance Act, 2022
Time limit for completion of assessment, reassessment and re-computation [Amendment to Section 153(1)] – Section 153(1) provides that the time limit for completion of assessment under section 143 or section 144 would be 21 months from the end of the assessment year (‘AY’) in which the income was first assessable.

– The second proviso to this section has been amended to provide that in case of an order of assessment relating to AY 2019-20, the time limit would be 12 months in-stead of 21 months and in case of that relating to AY 2020-21, the time limit would be 18 months instead of 21 months.

– The same shall be applicable from 1 April 2021.

VTPA Comments:

– Assessment in respect of AY 2020-21 which was getting time barred on 31 March 2022 has now been extended to 30 September 2022.

– The methodology adopted to give more time to the department when the limitation period is expiring, is completely different when it comes to giving time to the tax payer to comply with various deadlines, especially during the stressful COVID 19 times.

SECTION 153B(1): TIME LIMIT FOR COMPLETION OF ASSESSMENT UNDER SECTION 153A

SECTION Amendments as introduced by The Finance Bill, 2022 on 1 February 2022 Amendments as passed by The Finance Act, 2022
Time limit for completion of assessment under section 153A

[Amendment to Section 153B(1)]

– Section 153B(1) provides the time limit for completion of assessment or reassessment in search or requisition cases.

– A new sixth proviso to section 153B (1) has been inserted to provide that the assessment in the below cases for AY 2021-22 shall be made on or before 30 September 2022:

  • in case where the last of the authorisations for search under section 132 or requisition under section 132A was executed during financial year (‘FY’) 2020-21, or
  • in case of other person referred to in section 153C, the books of account or document or asset seized or requisitioned were handed over under section 153C to the Assessing Officer (‘AO’) having jurisdiction over such other person during FY 2020-21.

– The same shall be applicable from 1 April 2021.

– The time for completion of such assessments has been extended for the department.

SECTION 155: OTHER AMENDMENTS: DEDUCTION IN RESPECT OF SURCHARGE AND CESS

SECTION Amendments as introduced by The Finance Bill, 2022 on 1 February 2022 Amendments as passed by The Finance Act, 2022
Other amendments [Amendment to Section 155]

[Deduction in respect of Surcharge and Education Cess]

– The Bill proposed to clarify that the term ‘tax’ includes and shall be deemed to have always included any surcharge or cess, by whatever name called, and thereby the same is not a deductible expenditure as stated in section 40(a)(ii). ‘Surcharge’ or ‘cess’ claimed as deduction in any previous year deemed to be under-reporting of income

– Section 155 is amended to include sub-section (18) to provide that deduction in respect of surcharge or cess which is not allowable as deduction under section 40, claimed and been allowed to an assessee in any previous year (‘PY’) shall be deemed to be under-reported income of the assessee for such PY, for the purpose of sec-tion 270A(3).

– The provisions of section 270A(6) relating to exceptions for under-reported income would not be applicable to this sub-section.

– The AO shall re-compute total income of the assessee for such PY and make the necessary amendment.

– The provisions of section 154 regarding rectification of mistake shall apply to the same and the period of 4 years specified in section

Other amendments [Amendment to Section 155]

[Deduction in respect of Surcharge and Education Cess]

154(7), which relates to time limit for passing of order of rectification, would be reckoned from the end of PY 2021-22.

– The claim shall not be deemed to be under-reported income for the purposes of section 270A(3), in case the following requirements are fulfilled:

  • Assessee makes an application to the AO in prescribed form and within prescribed time,
  • Assessee has requested for re-computation of the total income of the PY without allowing deduction of surcharge or cess, and
  • Assessee pays amount due thereon within the specified time.
VTPA Comments:

– The amendment presumes that the deduction claimed by an assessee for payments made for surcharge and cess would tantamount to under-reporting of income under section 270A.

– The deduction claimed was on the basis of the law prevalent at that date, however, this position has been nullified by a retrospective amendment to section 40(a)(ii) by the Finance Bill 2022. Thus, can a claim for expenditure on the basis of the interpretation of law by various High Courts be said to be under-reporting of income is the larger question of law.

SECTION 158AB: PROCEDURE WHERE AN IDENTICAL QUESTION OF LAW IS PENDING BEFORE THE HIGH COURTS OR SUPREME COURT

SECTION Amendments as introduced by The Finance Bill, 2022 on 1 February 2022 Amendments as passed by The Finance Act, 2022
New Procedure for filing appeal by the tax authorities where an identical question of law is pending before the High Courts or Supreme Court

[Amendment to Section 158AB]

– New section 158AB pertaining to avoidance of repetitive appeals was proposed to be inserted to provide a procedure where an identical question of law is pending before the High Court (‘HC’) or the Supreme Court (‘SC’), thereby reducing litigation.

– A different time limit is prescribed for the Commissioner of Income-tax (Appeals) [‘CIT(A)’] order and Income-tax Appellate Tribunal (‘ITAT’) Order.

– The section provides the cases where the collegium may decide and intimate the CIT/PCIT not to file any appeal to the ITAT or the HC against the order of the CIT(A) or the ITAT, as the case may be.

– An amendment to section 158AB(2) is made to provide that the CIT/PCIT, on receipt of communication from the collegium, may direct the AO to make an application to the ITAT or HC in the prescribed form within 120 days from the date of receipt of the order of CIT(A) or ITAT respectively, stating that an appeal on the question of law arising in the relevant case may be filed when the decision on such question of law becomes final in the other case, notwithstanding any limita-tion mentioned in section 253(3) and section 260A(2)(a).

– An amendment to section 158AB(3) is also made to provide that the CIT/PCIT shall direct the AO to make an application under section 158AB(2) (supra) only if an ac-ceptance is received from the assessee to the effect that the question of law in the other case is identical to that arising in the relevant case.

New Procedure for filing appeal by the tax authorities where an identical question of law is pending before the High Courts or Supreme Court

[Amendment to Section 158AB]

Further, in case no such acceptance is received, the CIT/PCIT shall proceed in accordance with the provisions contained in section 253(2) or section 260A(2)(c), notwithstanding any limitation mentioned in section 253(3) and section 260A(2)(a).

– It is also now proposed to include filing of an appeal to the ITAT / High Court where the order passed by the CIT(A) or the ITAT is not in conformity with the final deci-sion on the question of law in the other case.

– Further, it is proposed that a time limit of 60 days will be applicable for the appeals to be filed with the ITAT and a period of 120 days will be applicable for appeals to be filed with the HC from the date on which the relevant order is communicated to the PCIT or CIT having jurisdiction over the case.

SECTION 170: SUCCESSION TO BUSINESS OTHERWISE THAN ON DEATH

SECTION Amendments as introduced by The Finance Bill, 2022 on 1 February 2022 Amendments as passed by The Finance Act, 2022
Succession to business otherwise than on death

[Amendment to Section 170]

– This section pertains to Succession to business otherwise than on death.

– A new sub-section 2A was introduced by the Finance Bill to provide that in case of a business reorganization, the assessment or reassessment or other proceedings, made on the predecessor during the course of pendency of such reorganisation, shall be deemed to have been made on the successor.

– An explanation was also inserted to define the terms ‘business organisation’ and ‘pendency’.

– An amendment is made to sub-section 2A to include:

-where there is succession, the assessment or reassessment or any other proceedings, made or initiated on the predecessor during the course of pendency of such succession, shall be deemed to have been made or initiated on the successor.

– The explanation is also consequently amended to exclude the definition of business reorganization and the word pendency is defined to mean:

‘the period commencing from the date of filing of application for such succession of business before the High Court or tribunal or the date of admission of an application for corporate insolvency resolution by the Adjudicating Authority as defined in clause (1) of section 5 of the Insolvency and Bankruptcy Code, 2016 and ending with the date on which the order of such High Court or tribunal or such Adjudicating Authority, as the case may be, is received by the Principal Commissioner or the Commissioner.’

VTPA Comments: – The term ‘succession’ has a wider meaning than business reorganization. The definition of ‘successor’ can be borrowed from section 170A as both the sections are interlinked, though the amendment does not clearly state so. The word successor is very wide and covers also cases where the business reorganization results in the formation of a new company. Further, it also considers proceedings whether made or initiated thus expanding the scope of words such assessment or reassessment made.

SECTION 170A: EFFECT OF ORDER OF TRIBUNAL OF COURT IN RESPECT OF BUSINESS REORGANIZATION

SECTION Amendments as introduced by The Finance Bill, 2022 on 1 February 2022 Amendments as passed by The Finance Act, 2022
Effect of order of tribunal of court in respect of business reorganization

[Amendment to Section 170A]

– A new section 170A was introduced wherein in a case of business reorganisation, where prior to the date of order of a HC or tri-bunal or an Adjudicating Authority any return of income has been furnished by the successor under section 139, such successor shall furnish, within a period of six months from the end of the month in which the said order was issued, a modified return in such form and manner, as may be pre-scribed, in accordance with such order.

– In line with the amendment in section 170, section 170A is also amended to include an Explanation which defines the terms ‘business reorganisation’ and ‘successor’

(i) “business reorganisation” means the reorganisation of business involving the amalgamation or de-merger or merger of business of one or more persons;

(ii) “successor” means all resulting companies in a business reorganisation, whether or not the company was in existence prior to such business reorganisation.

SECTION 194R: DEDUCTION OF TAX ON BENEFIT OR PERQUISITE IN RESPECT OF BUSINESS OR PROFESSION

SECTION Amendments as introduced by The Finance Bill, 2022 on 1 February 2022 Amendments as passed by The Finance Act, 2022
Deduction of tax on benefit or perquisite in respect of business or profession

[Amendment to Section 194R]

– A new section 194R was introduced whereby a person responsible for providing to a resident, any benefit or perquisite, whether convertible into money or not, is required to deduct tax at 10% of the value or aggregate of value of such benefit or perquisite

In case such benefit or perquisite is provided wholly in kind or partly in kind and partly in cash but such part in cash is not sufficient to meet the liability of deduc-tion of tax in respect of whole of such benefit or perquisite, the person responsible for providing such benefit or perquisite shall, before releasing the benefit or per-quisite, ensure that tax has been deducted has been paid in respect of the benefit or perquisite.

– Section 194R is amended to clarify that ‘ensure that tax has been deducted’ means ensure that tax required to be deducted has been paid in respect of the benefit or perquisite.

– New sub-sections (2) and (3) are inserted to provide that in case any difficulty arises in giving effect to the provisions of this section, the CBDT may, with the previous approval of the Central Government, issue guidelines for the purpose of removing the difficulty and such guidelines would be binding on the assessee and assessing authority.

VTPA Comments: – This amendment aims to remove any confusion faced by taxpayers on how the earlier term ‘ensure that tax has been deducted’ is to be interpreted. Although it may provide some clarity, it remains to be seen on how the same will be implemented along with appropri-ate valuation for such benefits and should not increase the burden on the taxpayer/recipient of such benefits or perquisites.

SECTION 194S: PAYMENT ON TRANSFER OF VIRTUAL DIGITAL ASSET

SECTION Amendments as introduced by The Finance Bill, 2022 on 1 February 2022 Amendments as passed by The Finance Act, 2022
Payment on transfer of virtual digital asset

[Amendment to Section 194S]

– The newly introduced section 194S provides that any person responsible for paying to a resident any sum by way of consideration for transfer of a virtual digital asset, shall, at the time of credit of such sum to the account of the resident or at the time of payment of such sum by any mode, whichever is earlier, de-duct an amount equal to one per cent. of such sum as income-tax.

– As per the amendment brought about by the Finance Bill 2022, payments made in respect of consideration on transfer of virtual digital assets shall be liable to TDS un-der section 194S.

– Further, the amendment has clarified that notwithstanding anything contained in the Chapter, a transaction in respect of which tax is deducted under section 194S shall not be liable to deduction to tax under any provisions in the chapter.

– It has been clarified that payment by any person of any sum by way of consideration for transfer of virtual digital assets made to any resident is liable for deduction of tax under section 194S.

– Further, it is now clarified that the person responsible for deducting tax, should ensure that tax which is ‘required to be deducted’ shall be paid, before release of such consideration for transfer of a virtual digital asset.

– The Finance Bill has omitted subsection (8) of section 194S and same is substituted in subsection (4) of section 194S. It is clarified that notwithstanding anything con-tained in section 194-O, in case of a transaction to which the provisions of the said section are applicable along with the provisions of section 194S, tax shall be deducted under section 194S(1).

Payment on transfer of virtual digital asset

[Amendment to Section 194S]

– Section 194-O specifies that where sale of goods or provision of services of an e-commerce participant is facilitated by an e-commerce operator through its digital or electronic facility or platform, such e-commerce operator shall, at the time of credit of amount of sale or services or both to the account of an e-commerce participant or at the time of payment thereof to such e-commerce participant, whichever is earlier, deduct income-tax at the rate of one per cent of the gross amount of such sales or services or both.
VTPA Comments: – The above amendment has clarified the scope of sections 194-O and 194S with respect to digital transactions and given precedence to section 194S(1) with respect to their transaction. However, further clarification is required as to the interplay of other TDS provisions with section 194S and the section that shall take precedence.

Disclaimer:  The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

Author Bio

Join Taxguru’s Network for Latest updates on Income Tax, GST, Company Law, Corporate Laws and other related subjects.

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Telegram

taxguru on telegram GROUP LINK

Review us on Google

More Under Income Tax

Leave a Comment

Your email address will not be published. Required fields are marked *

Search Posts by Date

June 2022
M T W T F S S
 12345
6789101112
13141516171819
20212223242526
27282930