The Union Budget 2022, which was unveiled as a road map to guide the Indian economy and nurture growth, includes major initiatives to boost infrastructure development, capital expenditure-inducing policies, and a distinct focus on the digital economy and fintech.
In the midst of the epidemic, the government had to strike a balance between reducing the budget deficit, producing enough money to satisfy its social commitments and spur economic growth, and fostering a stable and predictable tax regime.
The Honourable FM, the Finance Minister of the Country, kept all significant or vital aspects of the economy and its requirements in view while presenting her budget for 2022-23.
From the income tax perspective, the Finance Bill of the year 2022-2023 proposes important changes to the Income Tax Act, 1961 (“IT Act”).
Unexplained cash credit
The Finance Bill proposes an amendment to Section 68 of the IT Act; Section 68 deals with the tax-ability of “cash credits”, i.e., amounts received by a taxpayer for which the taxpayer cannot provide a satisfactory explanation to increase the burden on taxpayers by requiring them to not only provide a satisfactory explanation about its source, i.e., the person from whom it has accepted or marked the receipt of money.
This plan will be effective beginning in FY 2022-23 and will apply to funds acquired through loans or borrowing. Because additions made under section 68 of the IT Act are taxed at a higher rate (60%), it is a significant proposal because it places an extra burden on the taxpayer to prove the authenticity of its borrowings.
Virtual Digital Assets (“VDAs”) or Cryptocurrencies:
One of the most notable features of the Finance Bill is the plan to create a distinct taxing framework for VDAs, which would include:
(i) Gains deriving from the transfer of VDAs shall be taxed at a flat rate of 30% plus relevant surcharges and cess also, with no loss or cost set-off, except the cost of purchase of such VDA.
(ii) VDAs received for no or insufficient compensation shall be taxed as ordinary income in the recipient’s hands, and
(iii) Payments made in connection with the transfer of VDAs will be subject to a TDS of 1% of the amount paid over certain monetary limits.
It is important to stress that the implementation of a separate regime for VDA should not be interpreted as meaning that the government has expressed any opinion on the legal implications of cryptocurrencies.
Introduction of the concept of Updated Tax Return
The government of India is introducing a new concept of “Updated Return” to allow taxpayers to submit an “Updated Return” at any time within three years of the end of the relevant financial year, in addition to the time allowed under the IT Act for belated or revised returns, i.e., 2 years from the end of relevant assessment year.
To take advantage of this new idea, an extra tax of 25% or 50%, depending on when the “Updated Return” is filed, on the tax and interest due on the additional income would have to be paid, and the Updated Return would have to be accompanied by proof of payment of such additional tax. Certain circumstances, such as search and survey cases or instances where the tax officer has access to information under legislation such as the anti-money laundering statute, the Black Money Act, and so on, are not eligible for this function. The government wants to leverage the massive data it has with the income-tax department to generate more money and make it easier for taxpayers to comply in a litigation-free environment.
Measurement to be taken for reducing departmental appeals in income-tax matters
The Finance Bill proposes that where a “question of law” is pending before the Supreme Court or a jurisdictional High Court (“Pending QOL”), the income-tax department will not be able to file an appeal in the case of the same taxpayer or another taxpayer until the Pending QOL is resolved. Of course, the taxpayer must recognize that the
Pending QOL is the same as the “question of law” that arises in their instance.
A collegiate of two senior income-tax officials would be formed to carry out this plan. This is a positive step that will help to ensure that the already overburdened judiciary is not saddled with further frivolous litigation, as well as saving taxpayers time and money.
Overall, the Union Budget 2022 illustrates the government’s obvious intention to touch every element of the economy and leave no stone turned, whether it’s a push for the digital economy, an infrastructure boost, or a boost for the energy sector.
While certain demand-inducing measures, such as personal tax relief, would have made the general public happier, it is important to remember the difficult budgetary environment in which this major budget process was performed.
It is also to be appreciated that the economy is progressively recovering from the pandemic’s scars. In the coming weeks, numerous stakeholder meetings will take place, and it will be interesting to watch what emerges in the Finance Act of 2022.
