The much-awaited Union budget (“Budget”) for the financial year 2022-2023 was presented in the Parliament on 1 February 2022 by the Hon’ble Finance Minister. The following are 10 key takeaways and highlights from the budget announcements from a direct tax perspective.
1. Tax rates– The Budget does not provide for any changes in the income tax rates for individuals, corporates and other non-corporate taxpayers. However, in context of surcharge on income-tax, the Budget provides the following reliefs:
a. In case of an association of persons (AOPs) consisting of only companies as its members, the rate of surcharge on the income-tax shall not exceed 15%.
b. In case of all long-term capital gains, the rate of surcharge on the income-tax shall not exceed 15%.
In both the above cases, the surcharge earlier could have been between 10% to 37%, depending on quantum of taxable income of the taxpayer.
Further, the tax of Alternate Minimum Tax (AMT), if applicable to co-operative societies due to claiming certain tax deductions, has been reduced from 18.50% (plus applicable surcharge and cess) to 15% (plus applicable surcharge and cess). This amendment seeks to bring parity between co-operative societies and corporates which pay similar Minimum Alternate Tax (MAT) of 15% (plus applicable surcharge and cess).
Further, the concessional rate of tax of 15% (plus applicable surcharge and cess) on dividend income received by an Indian company from a foreign company in which it holds 26% or more of the nominal capital, has been phased out.
2. Tax on Virtual Digital Asset (‘VDA’) (such as cryptocurrency, NFTs, etc.) – A new clause (47A) has been inserted under section 2 of the Income-tax Act, 1961 (“Act”) to define ‘virtual digital asset’.
a. Virtual digital asset shall inter alia mean any information or code or number or token (not being an Indian or any foreign currency) generated through cryptographic means or otherwise, non-fungible token or any token of similar nature, or any other digital asset. The Government will notify the digital assets which will and will not be considered as VDAs.
b. Income from transfer of such VDA will be taxed at 30% (plus applicable surcharge and cess).
c. No costs (except the cost of acquisition) will be allowed as deduction while computing the taxable income. Further, the loss from the transfer of VDA shall neither be allowed for set off against any other income nor allowed to be carried forward.
d. The gift of VDA shall be taxable in the hands of recipient, if the transaction is not specifically excluded from tax under section 56(2)(x).
e. With effect from 1 July 2022, tax deducted at source (“TDS”) at 1% is applicable on payment of consideration to a resident towards transfer of the VDA, subject to monetary thresholds.
3. Extension in date of commencement of manufacturing and production – With effect from 1 April 2021, the last date for commencement of manufacturing and production for domestic manufacturing companies registered on or after 1 October 2019 under Section 115BAB has been extended from 31 March 2023 to 31 March 2024.
4. Extension in period of incorporation for eligible start-ups – With effect from 1 April 2021, the benefits under section 80-IAC of the Act shall now be extended to those start-ups that are incorporated on or after 1 April 2016 and up to 31 March 2023.
5. No deduction for expenditure in relation to exempt income – With effect from 1 April 2021, it has been clarified that expenditure incurred for earning exempt income will be disallowed as a deduction under section 14A irrespective of whether the taxpayer has actually earned exempt income during the concerned year.
6. Deductibility of cess and surcharge on income-tax – It has been clarified that cess and surcharge paid on income-tax are not a deductible business expense.
7. Covid-19 relief measures – Amendments have been made to exempt from tax the following receipts of money in connection with medical treatment or death due to Covid-19:
a. Amount received by an individual for the medical treatment expenditure actually incurred due to any illness related to Covid-19, for himself or for any member of his family;
b. Amount up to INR 10 lakhs received by a member of the family of the deceased person from the employer of the deceased person, provided that the death occurred due to Covid-19 illness and such amount is received within 12 months from the date of death of the deceased.
8. TDS on property under section 194IA – Requirement to deduct tax / TDS of 1% while making payment of consideration to a resident of INR 5mn or more for purchase of any immovable property (other than agricultural land), will be on the higher of the following amounts:
a. Actual purchase consideration, or
b. The stamp duty value of such property
TDS will not be applicable only when both the stamp duty value and purchase consideration are less than INR 5mn.
9. Bonus stripping made applicable to shares and other units of investment funds– In addition to units of mutual funds, the provisions of bonus-stripping under section 94(8) have now been made applicable to shares, securities and units of Infrastructure Investment Trust (InvIT), Real Estate Investment Trust (REIT) and Alternative Investment Funds (AIFs).
10. Further tax exemptions / relaxations to activities in International Financial Services Centre (IFSC) – To further incentivise operations from IFSC, further tax exemptions / deductions / relaxations have been provided to certain activities as explained below:
a. Tax exemption for income of a non-resident from transfer of offshore derivative instruments or over-the-counter derivatives entered into with an Offshore Banking Unit of an IFSC.
b. Tax exemption for royalty and interest income of a non-resident on account of lease of a ship, paid by a unit of IFSC which has commenced operations on or before 31 March, 2024.
c. Tax exemption for income of a non-resident from portfolio of securities or financial products or funds, managed or administered by any portfolio manager on behalf of such non-resident, in an account maintained with an Offshore Banking Unit, in any IFSC as long as the income accrues or arises outside India and is not deemed to accrue or arise in India.
d. Tax deduction for income from transfer of a ship leased by a unit of IFSC to any person shall also be eligible for tax deduction if the unit has commenced operations on or before 31 March 2024.
e. Relaxation from applicability of “angel-tax” provisions i.e. under section 56(2)(viib) to private limited companies receiving share premium in excess of fair market value, from a Category I or a Category II AIF regulated under the International Financial Services Centres Authority Act, 2019.
This article expresses our personal views on the Budget and is not to be construed as professional advice. We undertake no liability for the views expressed herein.