Union Budget 2022: Key Amendments in Taxation Decoded for the Taxpayers

The Finance Minister presented the Budget 2022 speech today. There were no changes in the individual taxpayer’s tax slab rates, but the finance minister provided new taxation rules for the income generated from virtual digital assets. Let’s look at the key amendments in the Finance Bill 2022 for the taxpayers.

New Provision for Updation of ITR

A new provision is inserted that allows the taxpayers to file an updated return for errors or mistakes done in income tax returns. Taxpayers can now file an updated return within two years from the end of the relevant assessment year. It is said to be a positive step towards promoting voluntary compliance.

Virtual Digital Assets Taxation Scheme

Due to the increase in the frequency and volume of transactions of Virtual Digital Assets, for the first time, the provision for taxation of virtual digital assets is introduced in Budget 2022. It has inserted Section 115 BBH, which provides taxation rules on income from virtual digital assets. The said provision states that any income from the transfer of virtual digital assets shall be taxed at 30%. No deduction for any expenditure shall be allowed from the same, except the acquisition cost. It further specifies that loss arising from the transfer of virtual digital assets cannot be adjusted against any other income, and it cannot be carried forward to subsequent years.

Another provision (Section 194S) is also inserted to deduct TDS at 1% at the time of payment on transfer of virtual digital assets where the amount is above the specified threshold limit.

The Finance Minister has further proposed to fully tax the gifts received in the form of virtual digital assets in the hands of the recipient. 

Reduced AMT and Surcharge Rates for Co-operative Societies

The budget 2022 has reduced the Alternative Minimum Tax (AMT) 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. It has further capped the surcharge at 7% for the co-operative societies with total income above Rs 1 crore and up to Rs 10 crore. 

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, which 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 said section is 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. 

Start-ups Tax Incentive Period Extended 

Citing the start-ups as drivers for the economy’s growth, the benefit of tax incentives under Section 80-IAC was available to the start-ups that were incorporated up to 31st March 2022. However, the benefit of tax incentives is further extended to start-ups incorporated up to 31st March 2023. 

Clarification for Allowability of Surcharge and Cess

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

Key Changes in GST

• The last date to make corrections, upload missed sales invoices or notes, or claim any missed Input Tax Credit (ITC) of one financial year is extended to 30th November of the following year.
• Suppose a person registered under the composition scheme fails to file an annual return within three months after the due date of 30th April of the following year. In that case, his registration can be cancelled by the officer. Likewise, for any other taxpayer, the six months consecutive default in return filing is replaced with defaulting consecutively for tax periods as may be prescribed.
• Section 38, earlier called furnishing of inward supplies, is amended completely to remove reference of earlier GSTR-2 and replace it with GSTR-2A and GSTR-2B with new provisions on ‘Communication of details of inward supplies and input tax credit’.
• The due date to file GSTR-5 by non-resident taxable persons is revised from the 20th of next month to the 13th of next month.
• Sections 42, 43, and 43A pertaining to matching reversal of input tax credits have been removed.

Amendments in Customs 

• Customs administration in SEZs will be fully IT-driven.
• Phasing out concessional rates in capital goods and project imports gradually and applying the initial rate of 7.5%.
• More than 350 exemptions on importing some Agri products, drugs, chemicals, etc., will be phased out.
• Customs duty exemption on steel scrap is extended by a year to help MSME.
• Petrol and diesel to be costlier with the levying of additional excise duty at Rs.2 per litre on unblended fuel for encouraging fuel blending.
• Cut and polished diamonds gems to become cheaper as customs duty is reduced to 5%.

For any clarifications/feedback on the topic, please contact the writer at namita.shah@cleartax.in.