India’s economy is showing clear signs of growth and recovery from the Covid pandemic. The economic survey projects that India’s economy will see real GDP growth of 9.2% in 2021-22 after contracting in 2020-21 and is expected to grow by 8-8.5% in 2022- 23. Keeping in mind the recovery trend of the economy, the FM in the budget for 2022-23 has focused on investments and capital expenditures that will further strengthen the recovery situation.
Continuing the determination of Digital India, the FM announced that the digital rupee – using blockchain technology – will be introduced by RBI in 2022-23. Blockchain technology also powers cryptocurrency, non-fungible tokens (NFTs) and it is a distributed ledger, updated in real time. To place digital assets under the tax regime, it has been provided that income from the transfer of any virtual digital asset will be taxed at the rate of 30%. No deduction of any expense or allowance is allowed in computing income, except for the cost of acquisition. In addition, the transferor will have to deduct the TDS at the rate of 1% at the time of the transfer of the virtual digital asset.
To provide much-needed fuel to the start-up ecosystem in India, it has been proposed to extend the tax exemption to eligible start-ups incorporated by March 31, 2023 from March 31, 2022.
In addition, in order to attract new investment and promote the manufacturing industry, the government has extended until March 31, 2024 the deadline for the start of production by new domestic manufacturing enterprises benefiting from the concessional tax rate. companies by 15%.
In recent years, the government has focused on reducing litigation before appeal authorities and the courts. In furtherance of this objective, it has been proposed that where a question of law is pending in the High Court of the Supreme Court on appeal, the Department of Income Tax may refrain from file further appeals on an identical question of law in court after agreeing to the taxpayer.
The taxpayers were claiming the education tax as an allowable business expense based on certain favorable rulings that said the tax was not a tax. In order to resolve this dispute and to reflect legislative intent, it has been retrospectively amended that the surtax and tax are in the nature of an additional “tax” and do not qualify as a business deduction.
The budget clarified that the conversion of unpaid interest on bank/NBFC loans into another loan or debenture would not be permitted as a deduction on the grounds that such conversion is a constructive payment.
The budget also gave taxpayers the option of filing an updated tax return. Considering the use of the enormous information and data available in the system and in order to give the taxpayer the opportunity to file correct tax returns, the current revised or late filing window is not sufficient. Accordingly, it was proposed to increase the deadline and allow taxpayers to file an updated declaration on the payment of additional tax within two years from the end of the relevant tax year. The additional tax would be between 25 percent and 50 percent of the total tax and interest due on the additional income provided.
Although industry expected reduced compliance and multiple withholding tax (TDS) sections, the government came forward with proposals adding new sections and also tightening some existing provisions. It has been proposed that persons who have not provided a tax return even during one tax year, compared to the previous two tax years, will be subject to a higher rate of TDS. In addition, it has also been proposed that when paying for the transfer of real estate, the tax should be deducted from the sum paid or from the stamp duty value of the property, whichever is greater. This also puts withholding provisions on par with other provisions where income is calculated in the hands of the transfer taking into account the consideration for the sale or the value of the stamp duty, whichever is greater. In addition, it has also been proposed to insert a new section for the deduction of tax at the rate of 10% by a person responsible for providing a resident with a benefit or an indirect advantage, convertible into money or not, which derives of a commercial or professional activity exercised by this resident.
It has also been proposed to cap the long-term capital gains surcharge at 15% on the transfer of any long-term fixed assets, which should benefit the industry as a whole.
Although budget expectations for relief for individuals are very high, no major relief was provided in Budget 2022. Consistency in tax policy, focus on reducing litigation without changes to raising tax rates is a welcome move. The government continues to focus on the digital economy and the ease of doing business in general by providing clarity on contentious issues. Government spending on agriculture, defence, infrastructure and healthcare should provide the necessary impetus for economic recovery and set the roadmap for a self-reliant India.
Contribution from Vikas Vasal, National Managing Partner – Tax, Grant Thornton Bharat LLP with contributions from Sujay Paul, Chartered Accountant and Sidharth Sipani, Chartered Accountant