The Union Budget 2022-23, while continuing with the declared policy of stable and predictable tax regime, intends to bring more reforms that will take ahead the vision to establish a trustworthy tax regime. Smt. Nirmala Sitharaman said that proposals relating to taxes and duties will further simplify the tax system, promote voluntary compliance by taxpayers, and reduce litigation.
| Summary of Direct/ Indirect Tax Proposals: Budget 2023-24 |
Highlights of Direct Tax Proposals of Union Budget 2022 (Finance Bill 2022-23)
On the Direct Tax side, the budget allows taxpayers to file updated income tax return within 2 years for correcting errors. It also provides tax relief to persons with disability. The budget also reduces Alternate minimum tax rate and surcharge for cooperatives. As an incentive for startups, period of incorporation of eligible startups has been extended by one more year. The budget proposes to increase tax deduction limit on employer’s contribution to NPS account of state government employees to bring parity with central government employees. Newly incorporated manufacturing entities will be incentivized under concessional tax regime. Income from transfer of virtual assets will be taxed at 30%. The budget proposes better litigation management to avoid repetitive appeals.
Introduction of new ‘Updated return’: booster for voluntary tax compliance
The budget proposes a new provision permitting taxpayers to file an Updated Return on payment of additional tax. This updated return can be filed within two years from the end of the relevant assessment year. Smt. Sitharaman said that with this proposal, there will be a trust reposed in the taxpayers that will enable the assessee herself to declare the income that she may have missed out earlier while filing her return. It is an affirmative step in the direction of voluntary tax compliance.
New IT Provisions on filing of ‘Updated Income Tax Return (UITR)’
Cooperative societies: Reduction in AMT and Surcharge
To provide a level playing field between co-operative societies and companies, the budget proposes to reduce Alternate Minimum Tax for the cooperative societies also to fifteen per cent. The Finance Minister also proposed to reduce the surcharge on co-operative societies from present 12 to 7 per cent for those having total income of more than Rs 1 crore and up to Rs 10 crores.
Reduction in AMT and Surcharge for Co-operative Societies
Tax relief to persons with disability and their parent/ guardian
The parent or guardian of a differently-abled person can take an insurance scheme for such person. The present law provides for deduction to the parent or guardian only if the lump sum payment or annuity is available to the differently abled person on the death of the subscriber i.e. parent or guardian. The budget now allows the payment of annuity and lump sum amount to the differently abled dependent during the lifetime of parents/guardians, i.e., on parents/ guardians attaining the age of sixty years.
Amendment in IT S. 80DD to allow deduction for release of annuity during lifetime
Parity in NPS Contribution for State Govt. Employees
The Central Government contributes 14 per cent of the salary of its employee to the National Pension System (NPS) Tier-I. This is allowed as a deduction in computing the income of the employee. However, such deduction is allowed only to the extent of 10 per cent of the salary in case of employees of the State government. To provide equal treatment, the budget proposes to increase the tax deduction limit from 10 per cent to 14 per cent on employer’s contribution to the NPS account of State Government employees as well, to enhance their social security.
State Govt Employees to get benefit of Enhanced deduction of 14% NPS Contribution
Incentives for Start-ups: Period of incorporation extended by one year
Eligible start-ups established before 31.3.2022 had been provided a tax incentive for three consecutive years out of ten years from incorporation. In view of the Covid pandemic, the budget provides for extending the period of incorporation of the eligible start-up by one more year, that is, up to 31.03.2023 for providing such tax incentive.
Block Period extended upto 31 March 2023 for Start-ups Tax Incentives
Incentives under concessional tax regime: S. 115BAB
In an effort to establish a globally competitive business environment for certain domestic companies, a concessional tax regime of 15 per cent tax was introduced by the government for newly incorporated domestic manufacturing companies. The Union Budget proposes to extend the last date for commencement of manufacturing or production under section 115BAB by one year i.e. from 31/03/2023 to 31/03/2024.
Timeline Extension u/s 115BAB upto 31/03/2024 for commencement of production
Scheme for taxation of virtual digital assets: New tax regime for virtual economy
For the taxation of virtual digital assets, the budget provides that any income from transfer of any virtual digital asset shall be taxed at the rate of 30 per cent. No deduction in respect of any expenditure or allowance shall be allowed while computing such income except cost of acquisition. Further, loss from transfer of virtual digital asset cannot be set off against any other income. In order to capture the transaction details, a provision has been made for TDS on payment made in relation to transfer of virtual digital asset at the rate of 1 per cent of such consideration above a monetary threshold. Gift of virtual digital asset is also proposed to be taxed in the hands of the recipient.
Definition of Virtual Digital Assets and the Scheme of Tax/ TDS thereon
Litigation Management: where question of law is identical to another case pending in HC/ SC
Taking forward the policy of sound litigation management, the budget provides that, if a question of law in the case of an assessee is identical to a question of law which is pending in appeal before the jurisdictional High Court or the Supreme Court in any case, the filing of further appeal in the case of this assessee by the department shall be deferred till such question of law is decided by the jurisdictional High Court or the Supreme Court, which will greatly help in reducing repeated litigation between taxpayers and the department.
Litigation Management in Appeals, where identical question of law is pending before HC/ SC
Tax incentives to IFSC units: additional exemptions
It has been proposed in the budget that income of a non-resident from offshore derivative instruments, or over the counter derivatives issued by an offshore banking unit, income from royalty and interest on account of lease of ship and income received from portfolio management services in IFSC shall be exempt from tax, subject to specified conditions.
Tax incentives for units located in International Financial Services Centre (IFSC)
Health and Education Cess: Any surcharge or cess on income and profits not allowable as business expenditure
It has been clarified in the budget that any surcharge or cess on income and profits is not allowable as business expenditure.
Clarification on ‘No deductions for cess and surcharge’ u/s 40
Deterrence against tax-evasion: No set off, of any loss to be allowed against undisclosed income detected during search and survey operations
In order to bring certainty and to increase deterrence among tax evaders, the Finance Minister proposed to provide that no set off, of any loss shall be allowed against undisclosed income detected during search and survey operations.
New IT S. 79A to deny any set off of loss in the cases under search/ survey
Rationalisation of Provision on Exemption Schemes for Charitable Trust/ Institutions
Income of any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10 or any trust or institution registered u/s 12AA or 12AB of the Act is exempt subject to the fulfilment of specified conditions, under the two regimes,-
(i) Regime for any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10 (hereinafter referred to as trust or institution under first regime); and
(ii) Regime for the trusts registered under section 12AA/12AB (hereinafter referred to as trust or institution under the second regime).
To rationalise the provisions of both the exemption regimes, certain amendments have been proposed in the Finance Bill 2022-23, like effective monitoring and implementation, consistency in the provisions of the two exemption regimes; and clarity on taxation in certain circumstances.
Amendments in IT Provision on Exemption Schemes for Charitable Trust/ Institutions
Withdrawal of certain Exemptions u/s 10 from AY 2023-24
It is proposed to amend clauses (8), (8A), (8B) and (9) of section 10 of the Act to provide that the provisions of the said clauses shall not apply to remuneration, fee or income of the previous year relevant to the assessment year beginning on or after the 1st day of April, 2023.
No Exemption under IT S. 10(8), (8A), (8B) and (9) from AY 2023-24
Filing of TDS Refund application before AO
Rationalization to allow filing of TDS refund application before the AO in lieu of existing requirement of filing the same before CIT (Appeals):
Amendment in S. 248/ New S. 239A to allow TDS Refund application before AO
Facilitating strategic disinvestment of public sector companies
Amendments proposed in Section 79 to facilitate strategic disinvestment of public sector companies, to provide that provisions of sub-section 1) shall not apply to an erstwhile public sector company:
Amendments in IT S. 79 to facilitate strategic disinvestment of public sector companies
Amendment in definition of the term “slump sale”
Definition of “slump sale” was amended last vide Finance Act, 2021 to expand its scope to cover all forms of transfer under slump sale. However, inadvertently, in the last sentence there is reference to the word “sales” instead of “transfer”.
Amendment in definition of the term “slump sale” u/s 2(42C)
Penalty u/s 272A increased to Rs. 500 per day for adequate deterrence
S. 272A of the Income Tax Act proposed to be amended to enhance penalty from Rs. 100 per day to Rs. 500 per day, to act as adequate deterrence against non-compliance:
Increase of Penalty u/s 272A to Rs. 500 per day for adequate deterrence
Enforcing Explanation of source of funds by creditor
Provisions of section 68 to be amended to provide that the nature and source of any sum credited in the books of an assessee shall be treated as explained only if the source of funds is also explained in the hands of the creditor or entry provider.
Amendment in S. 68 to enforce explanation of source of funds by creditor
TDS u/s 194-IA based on Stamp duty value
Provisions of TDS on sale of immovable property u/s 194-IA to be amended to consider stamp duty value, in sync with sections 43CA and 50C.
Stamp duty value to be considered for TDS u/s 194-IA on sale of immovable property
Allowability of Expenditure relating to offences/ prohibited activities u/s 37(1)
Intent of legislation clarified to avoid litigation on allowability of expenditure relating to an offence or prohibited activities.
Provisions for TCS Offences/ Prosecutions to match with TDS
Amendments proposed in Sections 278A and 278AA, relating to TDS offences/ prosecution, so that same provisions apply in the case of TCS.
Offences/ Prosecutions Provisions (Chapter XXII) for TCS to match with TDS
Ambiguity in Recovery of tax dues from directors
Amendment proposed in title of section 179 to rectify/ resolve the ambiguity which restricts the scope of recovery by IT Authorities from directors of the companies, specifically to liquidation cases only.
Amendment in title of IT S. 179 to resolve Ambiguity in Recovery of tax dues from directors
Timelines for Directions under Faceless Schemes extended
Amendments proposed in the provisions relating to extension of timeline for issuing directions upto 31/03/2024 in respect of Faceless Schemes u/s 92CA, 144C, 253 and 264A.
Extension of Timelines for Issuing Directions under Faceless Schemes, upto 31 March 2024
Rationalization of Surcharge
i) Surcharge on AOPs (consortium formed to execute a contract) capped at 15 per cent.
ii) Done to reduce the disparity in surcharge between individual companies and AOPs.
iii) Surcharge on long term capital gains arising on transfer of any type of assets capped at 15 per cent.
iv) To give a boost to the start up community.
Rationalizing TDS Provisions
i) Benefits passed on to agents as business promotion strategy taxable in hands of agents.
ii) Tax deduction provided to person giving benefits, if the aggregate value of such benefits exceeds Rs 20,000 during the financial year.
Other Proposals on Income Tax Amendments:
Enabling AO to pass Order u/s 156 for the Resolution of Disputes by DRC u/s 245MA
Introduction of Mechanism to recast Tax demands of successor entity u/s 170
Clarification on disallowance u/s 14A for expenditure relating to exempt income
Deduction u/s 43B only for actual payment of interest, no conversions!!
Interest Liability under IT S. 201(1A)/ 206C(7) for TDS/ TCS Defaults
Exemption of receipts for medical treatment or on death due to COVID-19
Higher TDS/ TCS rate u/s 206AB and 206CCA where ITR not filed for one year
New IT S. 194R for 10% TDS on benefit/ perquisite of a business/ profession
Reporting scope widened under IT S. 285B to cover ‘Specified Activities’
Bonus/ Dividend Stripping IT Provisions to apply on Securities/ Units
Concessional 15% tax rate on dividend income u/s 115BBD withdrawn from AY 2023-24
Amendments in IT S. 144B to streamline Faceless Assessment procedure
Rationalization of IT Provisions on ‘Assessment’ and ‘Reassessment’
Rationalization of IT Penalty Provisions u/s 271AAB, 271AAC and 271AAD
Reduction of Goodwill from block of assets to be considered as ‘transfer’
Amendments in S. 263 for Revision of Erroneous Order of TPO u/s 92CA
Amendments in S. 119 to empower CBDT to waive fee of Rs. 5000 u/s 234F
Amendment in Provisions on IT authorities for the purposes Section 133A
Summary of Indirect Tax Proposals of Union Budget 2022-23
On the Indirect tax side, the Union budget says that Customs administration in Special Economic Zones will be fully IT driven. It provides for phasing out of concessional rates in capital goods and project imports gradually and apply a moderate tariff of 7.5%. The budget underlines review of customs exemptions and tariff simplification, with more than 350 exemptions proposed to be gradually phased out. It proposes that customs duty rates will be calibrated to provide a graded structure to facilitate domestic electronics manufacturing. Rationalization of exemptions on implements and tools for agri sector manufactured in India will be undertaken. Customs duty exemption to steel scrap will be extended. Unblended fuel will attract additional differential excise duty.
Remarkable progress in GST
- GST revenues are buoyant despite the pandemic – Taxpayers deserve applause for this growth.
Special Economic Zones
- Customs Administration of SEZs to be fully IT driven and function on the Customs National Portal – shall be implemented by 30th September 2022.
Customs Reforms and duty rate changes
- Faceless Customs has been fully established. During Covid-19 pandemic, Customs formations have done exceptional frontline work against all odds displaying agility and purpose.
Project imports and capital goods
- Gradually phasing out of the concessional rates in capital goods and project imports; and applying a moderate tariff of 7.5 percent – conducive to the growth of domestic sector and ‘Make in India’.
- Certain exemptions for advanced machineries that are not manufactured within the country shall continue.
- A few exemptions introduced on inputs, like specialised castings, ball screw and linear motion guide – to encourage domestic manufacturing of capital goods.
Review of customs exemptions and tariff simplification
- More than 350 exemption entries proposed to be gradually phased out, like exemption on certain agricultural produce, chemicals, fabrics, medical devices, & drugs and medicines for which sufficient domestic capacity exists.
- Simplifying the Customs rate and tariff structure particularly for sectors like chemicals, textiles and metals and minimise disputes; Removal of exemption on items which are or can be manufactured in India and providing concessional duties on raw material that go into manufacturing of intermediate products – in line with the objective of ‘Make in India’ and ‘Atmanirbhar Bharat’.
Sector specific proposals
Electronics
- Customs duty rates to be calibrated to provide a graded rate structure – to facilitate domestic manufacturing of wearable devices, hearable devices and electronic smart meters.
- Duty concessions to parts of transformer of mobile phone chargers and camera lens of mobile camera module and certain other items – To enable domestic manufacturing of high growth electronic items.
Gems and Jewellery
- Customs duty on cut and polished diamonds and gemstones being reduced to 5 per cent; Nil customs duty to simply sawn diamond – To give a boost to the Gems and Jewellery sector
- A simplified regulatory framework to be implemented by June this year – To facilitate export of jewellery through e-commerce.
- Customs duty of at least Rs 400 per Kg to be paid on imitation jewellery import – To disincentivise import of undervalued imitation jewellery.
Chemicals
- Customs duty on certain critical chemicals namely methanol, acetic acid and heavy feed stocks for petroleum refining being reduced; Duty is being raised on sodium cyanide for which adequate domestic capacity exists – This will help in enhancing domestic value addition.
MSME
- Customs duty on umbrellas being raised to 20 per cent. Exemption to parts of umbrellas being withdrawn.
- Exemption being rationalised on implements and tools for agri-sector which are manufactured in India
- Customs duty exemption given to steel scrap last year extended for another year to provide relief to MSME secondary steel producers
- Certain Anti- dumping and CVD on stainless steel and coated steel flat products, bars of alloy steel and high-speed steel are being revoked – to tackle prevailing high prices of metal in larger public interest.
Exports
- To incentivise exports, exemptions being provided on items such as embellishment, trimming, fasteners, buttons, zipper, lining material, specified leather, furniture fittings and packaging boxes.
- Duty being reduced on certain inputs required for shrimp aquaculture – to promote its exports.
Tariff measure to encourage blending of fuel
- Unblended fuel to attract an additional differential excise duty of Rs 2/ litre from the 1st of October 2022 – to encourage blending of fuel.
The budget says that reforms in Customs Administration of Special Economic Zones will be undertaken, and it shall henceforth be fully IT driven and function on the Customs National Portal with a focus on higher facilitation and with only risk-based checks. This reform shall be implemented by 30th September 2022.
The budget proposes to phase out the concessional rates in capital goods and project imports gradually and apply a moderate tariff of 7.5 per cent. Certain exemptions for advanced machineries that are not manufactured within the country shall continue. A few exemptions have been introduced on inputs, like specialised castings, ball screw and linear motion guide, to encourage domestic manufacturing of capital goods.
More than 350 exemption entries will be gradually phased out. These include exemption on certain agricultural produce, chemicals, fabrics, medical devices and drugs and medicines for which sufficient domestic capacity exists. Further, several concessional rates are being incorporated in the Customs Tariff Schedule itself instead of prescribing them through various notifications.
In the field of electronics, Customs duty rates are being calibrated to provide a graded rate structure to facilitate domestic manufacturing of wearable devices, hearable devices and electronic smart meters. Duty concessions are also being given to parts of transformer of mobile phone chargers and camera lens of mobile camera module and certain other items.
To give a boost to the Gems and Jewellery sector, Customs duty on cut and polished diamonds and gemstones is being reduced to 5 per cent. To facilitate export of jewellery through e-commerce, a simplified regulatory framework shall be implemented by June this year. To disincentivise import of undervalued imitation jewellery, the customs duty on imitation jewellery is being prescribed in a manner that a duty of at least Rs 400 per Kg is paid on its import.
Customs duty on certain critical chemicals namely methanol, acetic acid and heavy feed stocks for petroleum refining are being reduced, while duty is being raised on sodium cyanide for which adequate domestic capacity exists.
Duty on umbrellas is being raised to 20 per cent. Exemption to parts of umbrellas is being withdrawn. Exemption is also being rationalised on implements and tools for agri-sector which are manufactured in India. Customs duty exemption given to steel scrap last year is being extended for another year. Certain Anti- dumping and CVD on stainless steel and coated steel flat products, bars of alloy steel and high-speed steel are being revoked.
To incentivise exports, exemptions are being provided on items such as embellishment, trimming, fasteners, buttons, zipper, lining material, specified leather, furniture fittings and packaging boxes that may be needed by bonafide exporters of handicrafts, textiles and leather garments, leather footwear and other goods. Duty is being reduced on certain inputs required for shrimp aquaculture so as to promote its exports.
Blending of fuel is a priority of this Government. To encourage the efforts for blending of fuel, unblended fuel shall attract an additional differential excise duty of Rs 2/ litre from the 1st day of October 2022.