The Finance Minister has introduced the Union Budget 2022 (‘Budget’) in the Parliament aiming to boost economic growth and revive sustainably from the ravages of the COVID-19 pandemic. The aim seems to start a virtuous cycle of growth by increasing public expenditure, in the hope of attracting private investment.
But in order to facilitate the growth push, the government has had to make a compromise and the casualty here is the degree of fiscal consolidation to be achieved over the next few years. At 6.4 per cent of GDP, the fiscal deficit target for the next financial year is well above the range of 6-6.20 per cent that was predicted by a majority of economists. Financing that fiscal deficit will require the government to borrow a gargantuan INR 14.95 lakh crore from the domestic market through the sale of bonds – a fresh all-time high. The effect can already be seen in the debt market, as sovereign debt yields have increased at a very high rate since the presentation of the Budget.
We hope that the public spending will ease the pain by way of increase in jobs and help the MSME and the SME sectors to withstand the stress caused by COVID-19.
The Budget aims to rationalise many provisions of the Income-tax Act, 1961 (the Act). However, it seems that in fact the law has become very complex and stringent for charitable trusts and institutions. Further, the reopening provisions have also been widened, creating more uncertainty for the taxpayers.
The Parliament aims to continue its push for faceless assessments and also appellate processes. It is hoped that the functioning of the Income-tax Appellate Tribunal (the Tribunal) is not hampered by this aim, as the Tribunal plays a very important role in meeting out justice in various tax matters, and trying to achieve a faceless Tribunal process may be counter-productive
The key amendments introduced by the Budget in relation to the direct tax proposals are provided below.
KEY INCOME-TAX PROPOSALS
PROFITS AND GAINS OF BUSINESS OR PROFESSION
Expenditure on scientific research
[Section 35(1A)] |
|
VTPA Comments | The above amendment is proposed considering the intent of the legislation to allow the deduction in the hands of research association, university, college or other institution. |
General allowability of expenditure [Section 37] |
|
VTPA Comments |
The above amendment brings an end to the below issues:
The Mumbai ITAT in a recent decision of Macleods Pharmaceuticals in ITA Nos. 5168 & 5169/Mum/2018 vide order dated 14 October 2021 has covered the above issue in length. The Mumbai ITAT clarifies the legal position that the claim of any expense incurred in providing various benefits is in violation of the provisions of Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 and shall be inadmissible under sub-section (1) of section 37 of Act being an expense prohibited by the law.
Thus, amounts paid for compounding of offences under various legislations including FEMA, Companies Act, 2013, etc., would not be allowed as a deduction. |
Amounts not deductible while computing the income chargeable under the head Profits and gains of business or profession [Clarification regarding treatment of cess and surcharge] [Section 40(a)(ii) |
|
VTPA Comments |
|
VTPA Comments
(Cont…) |
|
Certain deductions to be allowed only on actual payment of interest [Section 43B] |
|
VTPA Comments |
|
CAPITAL GAINS
Special provision for computation of capital gains in case of depreciable assets [Section 50] |
♦ Section 50 of the Act which is a special provision for computation of capital gains in case of depreciable assets is proposed to be amended by introducing an Explanation to clarify that for the purpose of section 50 of the Act, reduction of the amount of goodwill of a business or profession, from the block of asset in accordance with section 43(6)(c)(ii)(B) of the Act shall be deemed to be transfer.
♦ This amendment is proposed to come into effect retrospectively from 1 April 2021 and accordingly would apply in relation to AY 2021-22 and thereafter. |
VTPA Comments | The said amendment is clarificatory in nature. It is pertinent to note that such reduction could result in tax implications where there is no asset in the block or value of block becomes NIL on reduction of goodwill. |
DEDUCTIONS
Deduction in respect of contribution to pension scheme of Central Government [Section 80CCD] |
♦ Section 80CCD(2) provides that any contribution made by the Central Government or any other employer to the account of the employee under a notified pension scheme, the assessee shall be allowed a deduction in the computation of his total income, of the whole of the amount contributed by the Central Government, if it does not exceed:
The State Governments were given an option to raise the contribution to 14% with effect from 01.04.2019 on their own volition, based on their own internal approvals and notifications, without seeking the approval of the Pension Fund Regulatory and Development Authority. ♦ In order to ensure that the State Government employees also get full deduction of the enhanced contribution by the State Government, it is proposed to increase the limit of deduction under section 80CCD of the Act from the existing ten per cent to fourteen per cent in respect of contribution made by the State Government to the account of its employee. ♦ This amendment will take effect retrospectively from 1 April 2020 and will accordingly apply in relation to the AY 2020-21 and subsequent AYs. |
VTPA Comments | The amendment has been made retrospective so as to ensure no additional tax liability arises on any contribution made in excess of 10% during such time. |
Deduction in respect of maintenance including medical treatment of a dependant who is a person with disability [Section 80DD] |
♦ Section 80DD(2)(a) is proposed to be substituted so as to provide that the deduction under section 80DD(1)(b) shall be allowed if the scheme provides for payment of annuity or lump sum amount for the benefit of a dependant, being a person with disability, in the event of the death of the individual or the member of the Hindu undivided family in whose name subscription to the scheme has been made; or on his attaining the age of sixty years or more or the member of the Hindu undivided family, and the payment or deposit to such scheme has been discontinued.
♦ Further, it is proposed to insert a new sub-section (3A) to provide that the provisions of sub-section (3) shall not apply to the amount received by the dependant, being a person with disability, before his death, by way of annuity or lump sum by application of the condition referred to in the proposed sub-clause (ii) of clause (a) of sub-section (2). ♦ This amendment is proposed to come into effect from 1 April 2023 and accordingly would apply in relation to AY 2023-24 and thereafter. |
Special provision in respect of specified business [Start-ups] [Section 80-IAC] |
♦ Section 80-IAC of the Act provides for a deduction of 100% of the profits and gains derived from an eligible business by an eligible start-up having turnover not exceeding INR 100 crores, for 3 consecutive assessment years out of 10 years, at the option of the assessee, subject to certain conditions, for an eligible start-up incorporated on or after the 1 April 2016 but before the 1 April 2022.
♦ It is now proposed to extend the period of incorporation of such eligible start-ups till 1 April 2023. ♦ This amendment is proposed to come into effect from 1 April 2022, and accordingly would apply in relation to AY 2022-23 and thereafter. |
SPECIAL TAXATION REGIME FOR VIRTUAL DIGITAL ASSET
Definition of ‘Virtual Digital Asset’
[Section 2(47A)] |
|
Taxation of Virtual Digital Asset
[Section 115BBH] |
|
Set-off and carry forward of losses |
|
Gift taxation for Virtual Digital Asset [Section 56(2)(x)] |
|
Payment on transfer of virtual digital asset (Withholding tax) [Insertion of new Section 194S] |
the person before making the payment shall ensure that the tax has been paid in respect of such consideration.
|
Payment on transfer of virtual digital asset (Withholding tax) [Insertion of new Section 194S] (Cont…) |
|
VTPA Comments |
|
INTERNATIONAL FINANCIAL SERVICES CENTRE
Tax Incentives to International Financial Services Centre (IFSC) [Section 10(4E) Section 10(4F) and Section 10(4G)] |
The definition of the term ‘ship’ is also inserted to mean a ship or an ocean vessel, an engine of a ship or an ocean vessel, or any part thereof.
The term ‘portfolio manager’ is proposed to have the same meaning as assigned to it in clause (z) of sub-regulation (1) of regulation (2) of the International Financial Services Centres Authority (Capital Market Intermediaries) Regulations, 2021 made under the International Financial Services Centres Authority Act, 2019.
|
Tax Incentives to International Financial Services Centre (IFSC) [Section 56 income from other sources] |
|
Tax Incentives to International Financial Services Centre (IFSC) [Section 80LA Deductions in respect of certain incomes of Offshore Banking Units and IFSC] |
|
CHARITABLE TRUSTS AND INSTITUTIONS
Rationalization of provisions of Charitable Trusts and Institutions [Section 10(23C), 11, 12, 12A, 12AA, 12AB, 13, 115BBI, 143, 153, 271AAE] |
|
Rationalization of provisions of Charitable Trusts and Institutions
[Section 10(23C), 11, 12, 12A, 12AA, 12AB, 13, 115BBI, 143, 153, 271AAE] (Cont….) |
|
Rationalization of provisions of Charitable Trusts and Institutions [Section 10(23C), 11, 12, 12A, 12AA, 12AB, 13, 115BBI, 143, 153, 271AAE] (Cont…) |
|
Benefits to related persons
[Section 271AAE] |
The Assessing Officer may direct that such person shall pay by way of penalty : a) a sum equal to the aggregate amount of income applied, directly or indirectly, by such person, for the benefit of any person referred to in sub-section (3) of section 13, where the violation is noticed for the first time during any previous year; and b) a sum equal to two hundred per cent. of the aggregate amount of income of such person applied, directly or indirectly, by that person, for the benefit of any person referred to in sub-section (3) of section 13, where violation is noticed again in any subsequent previous year. – The amendment is proposed to come into effect from 1 April 2023, and accordingly would apply in relation to AY 2023-24 and thereafter. |
VTPA Comments |
|
ADMINISTRATION AND ASSESSMENTS
Power of CBDT
[Section 119] |
|
Search and Seizure (Retention of books or documents) [Section 132] and Application of seized or requisitioned assets [Section 132B] |
|
Power of survey Definition of ‘Income-tax authority’ [Section 133A] |
|
Assessment
[Section 143] |
|
Best judgement assessment
[Section 144] |
|
Reference to dispute resolution panel [Section 144C] |
|
Faceless Assessment
[Section 144B] |
|
Faceless Assessment
[Section 144B] |
·
|
VTPA Comments |
|
Issue of notice where income has escaped assessment [Section 148] |
|
Issue of notice where income has escaped assessment [Section 148] |
|
Conducting inquiry, providing opportunity before issue of notice under section 148 [Section 148A] |
|
Prior approval for assessment, reassessment or re-computation in certain cases [Insertion of new Section 148B] |
|
Time limit for issuance of notice under Section 148 for assessment, reassessment or re-computation of income [Section 149] |
|
Time limit for issuance of notice under Section 148 for assessment, reassessment or re-computation of income [Section 149] |
|
Time limit for completion of assessment, reassessment and re-computation [Section 153] |
|
Time limit for completion of assessment, reassessment and re-computation [Section 153] |
|
Time limit for completion of assessment under section 153A [Section 153B] |
|
VTPA Comments |
|
Modification and revision of notice in certain cases [Insertion of new Section 156A] |
|
VTPA Comments |
|
Procedure when in an appeal by revenue an identical question of law is pending before Supreme Court [Section 158AA] |
|
Procedure where an identical question of law is pending before the High Courts or Supreme Court [Section 158AB] |
|
Procedure where an identical question of law is pending before the High Courts or Supreme Court [Section 158AB] |
|
VTPA Comments | The above amendment may help in reducing litigation. |
Dispute Resolution Committee [Section 245MA] |
(a) in a case where the specified order is a draft of the proposed order of assessment under sub-section (1) of section 144C, pass an order of assessment, reassessment or recomputation; or (b) in any other case, modify the order of assessment, reassessment or recomputation
|
VTPA Comments |
|
Appeals to the Appellate Tribunal [Section 253] Procedure of Appellate Tribunal [Section 255] |
|
VTPA Comments |
|
Revision of orders prejudicial to revenue [Section 263] |
|
VTPA comments |
|
SPECIAL RATES OF TAX
Reference to TPO [Section 92CA] |
|
VTPA Comments |
|
WITHHOLDING TAX PROVISIONS
Payment on transfer of certain immovable property other than agricultural land [Section 194-IA] |
|
Payment of rent by certain individuals or Hindu undivided family [Section 194-IB] Special provision for deduction of tax at source for non-filers of income-tax return [Section 206AB] special provision for collection of tax at source for non-filers of income-tax return [Section 206CCA] |
|
Deduction of tax on benefit of perquisite in respect of business or profession [Insertion of new section 194R] |
|
VTPA Comments |
|
Consequences of failure to deduct or pay [Section 201] |
|
Profits and gains from the business of trading in alcoholic liquor, forest produce, scrap, etc. [Section 206C] |
|
OTHER AMENDMENTS
Definition of Slump Sale [Section 2(42C)] |
The definition of Slump sale under section 2(42C) is proposed to be amended to substitute the word ‘sales’ with ‘transfer’ as defined in section 2(47) of the Act. This amendment is proposed to have come into effect retrospectively from 1 April 2021, and accordingly would apply in relation to AY 2021-22 and thereafter. |
VTPA Comments |
|
Income not forming part of Total Income [Section 10 (8)/(8A)/(8B) and (9)] |
|
No deduction shall be allowed relating to expenditure incurred in relation to income not includible in total income [Section 14A] |
Section 14A provides that no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act. It is proposed to amend section 14A(1) to provide so as to include a non-obstante clause in respect of other provisions of the Income-tax Act and provide that no deduction shall be allowed in relation to exempt income, notwithstanding anything to the contrary contained in this Act. It is also proposed to insert an Explanation to the said section to clarify that notwithstanding anything to the contrary contained in this Act, the provisions of the said section shall apply and shall be deemed to have been always applied in a case where the income, not forming part of the total income, has not accrued or arisen or has not been received during the previous year relevant to an assessment year and the expenditure has been incurred during the said previous year in relation to such income not form part of the total income. The amendment is proposed to come into effect from 1 April 2022, and accordingly would apply in relation to AY 2022-23 and thereafter. |
VTPA Comments |
|
Covid related measures Definition of the term ‘perquisite’ [Section 17] |
|
VTPA Comments |
|
Covid related measures Income from other sources [Section 56(2)(x)] |
|
Cash credits
[Section 68] |
|
VTPA Comments |
|
Carry forward and set-off of losses in case of certain companies [Section 79] |
|
VTPA Comments |
|
No set off of losses consequent to search, requisition and survey [Section 79A] |
|
Avoidance of tax by certain transactions in securities [Section 94] |
|
VTPA Comments |
|
Furnishing of updated return [Section 139] |
|
Furnishing of updated return [Section 139] Cont…) |
|
Furnishing of updated return [Section 140B] |
(i) the amount of tax, if any, already paid as advance tax; (ii) any tax deducted or collected at source; (iii) any relief of tax claimed under section 89; (iv) any relief of tax or deduction of tax claimed under section 90 or section 91 on account of tax paid in a country outside India; (v) any relief of tax claimed under section 90A on account of tax paid in any specified territory outside India referred to in that section; and (vi) any tax credit claimed to be set off in accordance with the provisions of section 115JAA or section 115JD.
|
Furnishing of updated return [Section 140B] |
|
Succession to business otherwise than on death [Section 170] Effect of order of tribunal or court in respect of business reorganization [Insertion of new Section 170A] |
|
Appeal by a person denying liability to deduct tax in certain cases [Section 248] Refund for denying liability to deduct tax in certain cases. [Section 239A]. Appealable orders before Commissioner (Appeals) [Section 246A] |
|
VTPA Comments |
|
Tax on Income of New Manufacturing Domestic companies [Section 115BAB] |
|
VTPA Comments |
|
Tax on certain dividends received from foreign companies. [Section 115BBD] |
|
VTPA Comments |
|
Special provisions for payment of tax (AMT) by certain persons other than a company [Section 115JC and Section 115JF] |
|
Liability of Directors of a Private Company [Section 179] |
|
PENALTY AND PROSECUTION
Penalty where search has been initiated [Section 271AAB] Penalty in respect of certain income [Section 271AAC] Penalty for false entry, etc., in books of account [Section 271AAD] |
|
VTPA comments |
|
Penalty for failure to deduct tax at source [Section 271C] |
|
VTPA Comments |
|
Penalty for failure to answer questions, sign statements, furnish information, returns or statements, allow inspections, etc. [Section 272A] |
|
Penalty Failure to comply with the provisions of Sections 269UC, 269UE and 269UL [Section 276AB] |
|
Failure to pay tax to the credit of Central Government under Chapter XII-D or XVII-B [Section 276B] |
|
VTPA Comments |
|
Failure to furnish returns of income [Section 276CC] |
|
Punishment for second and subsequent offences [Section 278A] Punishment not to be imposed in certain cases [Section 278AA] |
|
VTPA Comments |
|
Submission of statements by producers of cinematograph films or persons engaged in specified activity. [Section 285B] |
|
VTPA Comments |
|
RATES OF TAX
1.1. For Individuals, Hindu Undivided Families, Association of Persons, Body of Individuals and Artificial judicial person
Existing Tax Rates** | |
Total Income (INR) | Rate (%) @ |
0 – 2,50,000# | Nil |
2,50,001 – 5,00,000# | 5 |
5,00,001 – 10,00,000 | 20 |
10,00,001 and above | 30 |
@ Health and Education cess of 4% is leviable on the amount of income-tax and surcharge.
# The basic exemption limit is INR 250,000 in case of every individual below the age of 60 years, INR 300,000 in case of resident individuals of the age of 60 years or more, and INR 500,000 for ‘very senior citizen’ in case of resident individuals of age 80 years and above.
** Where total income does not exceed INR 500,000, the assessee shall be entitled to a credit on the income-tax payable, not exceeding of an amount equal to hundred percent of the Income-tax payable or INR 12,500, whichever is less.
The surcharge on income-tax, for Individuals, Hindu Undivided Families, Association of Persons, Body of Individuals and Artificial judicial person, are as follows:
Total Income (INR) | Surcharge (%) |
5 million – 10 million | 10 |
10 million – 20 million | 15 |
20 million – 50 million | 25 |
Above 50 million | 37 |
- The enhanced surcharge of 25% & 37%, as the case may be, is not levied, from income chargeable to tax under sections 111A, 112A and 115AD. Hence, the maximum rate of surcharge on tax payable on such incomes shall be 15%.
Further, the individual / HUF should also consider the newly introduced concessional regime of taxation, as explained below.
Tax on incomes of individuals and Hindu Undivided Family under section 115BAC
- As per the new section 115BAC introduced from the Finance Act, 2020, in the case of Individuals / HUFs, who do not claim exemptions and deductions as per the section, the below new concessional rates would be applicable as shown in the below table:
Total Income (INR) | Tax Rate in % |
0 to 2,50,000 | NIL |
From 2,50,001 to 5,00,000 | 5 |
From 5,00,001 to 7,50,000 | 10 |
From 7,50,001 to 10,00,000 | 15 |
From 10,00,001 to 12,50,000 | 20 |
From 12,50,001 to 15,00,000 | 25 |
Above 15,00,000 | 30 |
- Section 115BAC has amended only the basic slab rates, and other provisions applicable to Individuals / HUFs, namely, rebate under section 87A, and the applicable rates of education cess and surcharge would be computed on the same basis as above, that is, under normal rates of tax.
1.2. For Others
There are no changes in the Income-tax rates in the Budget. Summary of the same is provided as under:
Description | Existing Tax Rates (%) | ||
Having Income up to INR 10 million |
Having Income from INR 10 million to 100 million |
Having Income more than INR 100 million |
|
(Including Health and Education Cess @ 4%) | |||
Regular tax as per Para E of the 1st Schedule to the Finance Act (Turnover up to INR 4000 mn) | 26.00 | 27.82* | 29.12** |
Regular tax as per Para E of the 1st Schedule to the Finance Act (Turnover > INR 4000 mn and not covered below) | 31.20 | 33.38* | 34.94** |
115BA | 26.00 | 27.82* | 29.12** |
115BAA | 25.17*** | 25.17*** | 25.17*** |
115BAB | 17.16*** | 17.16*** | 17.16*** |
MAT@ | 15.60 | 16.69* | 17.47** |
(of book profits) | (of book
profits)* |
(of book profits)** | |
Dividend Received from Foreign
subsidiary company (section 115BBD) |
15.60 | 16.69* | 17.47** |
Regular tax (Foreign Company) | 41.60 | 42.43$ | 43.68# |
Regular tax (Firm) | 31.20 | 34.944** | |
Alternate Minimum Tax (AMT) | 19.24 | 21.55** | |
Alternate Minimum Tax (AMT) (Co-operative societies) | 15.60^ | 17.47** |
* Inclusive of surcharge @ of 7 %
** Inclusive of surcharge @ of 12 %
*** Inclusive of surcharge @ of 10 %
$ Inclusive of surcharge @ of 2 %
# Inclusive of surcharge @ of 5 %
@ MAT provisions would not be applicable for who has opted for special taxation regime under Section 115BAA & 115BAB
^ Sub-section (4) of section 115JC has been modified to reduce the AMT rate at which cooperative societies are liable to pay income-tax to 15%. Consequential amendment is also proposed in clause (b) of section 115JF in relation to the definition of ‘alternate minimum tax’.
****
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.