Budget 2022: Mixed bag of economy boosters and clarificatory measures

The Indian economy is showing clear signs of growth and recovery post Covid pandemic. The Economic Survey expects the Indian economy to witness real GDP expansion of 9.2 per cent in 2021-22 after contracting in 2020-21 and it is expected to grow at 8-8.5 per cent in 2022-23. Keeping in view recovery trend of the economy, the FM in budget for 2022-23 has focused on investments and capital expenditure which will further solidify the reviving condition.

Continuing with the resolve of Digital India, the FM has announced that 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 bring digital assets under tax regime, it has been provided that income from transfer of any virtual digital assets will be taxed at the rate of 30 per cent. No deduction of any expenditure or allowance shall be granted while computing the income except cost of acquisition. Further, the transferor will have to deduct TDS at the rate of 1 per cent at the time of transfer of virtual digital asset.

To provide the much-required fuel to the start-up ecosystem in India, the tax holiday has been proposed to be extended to eligible start-ups incorporated by 31 March 2023 as against 31 March 2022.

Also, in order to attract new investment and promote manufacturing, the government has extended the sun-set date for commencement of production by new domestic manufacturing companies availing the concessional corporate tax rate of 15 per cent to 31 March 2024.

For the past few years, the government’s focus has been on reducing litigation before appellate authorities & courts. In furtherance to this objective, it has been proposed that where a question of law is pending before High Court of Supreme Court in an appeal, the income tax department may refrain from filing further appeals on identical question of law before the Courts after taking acceptance from the taxpayer.

Taxpayers had been claiming education cess as an allowable business expenditure based on certain favourable rulings which held that such cess is not tax. In order to settle this litigation and to reflect the legislative intent, it has been retrospectively amended that surcharge and cess are in the nature of additional ‘tax’ and not allowable as business deduction.

The Budget has clarified that conversion of outstanding interest on loans from Banks/ NBFCs to another loan or debenture would not be allowed as deduction on the basis that such conversion is a constructive payment.

The budget has also provided the taxpayers with an opportunity to file updated income tax return. Considering utilization of huge information and data available in the system and in order to provide an opportunity to the taxpayer to file correct tax returns, the current window of filing revised or belated is not sufficient. Accordingly, it has been proposed to increase the time limit and allow the taxpayers to file an updated return on payment of additional tax within two years from the end of the relevant assessment year.  The additional tax would range from 25 per cent to 50 per cent of the aggregate of tax and interest payable on the additional income furnished.

Although, the industry was expecting a reduction in compliance and multiple sections on tax deducted at source (TDS), the government has come up with proposals adding new sections and also tightening certain existing provisions. It has been proposed that persons who have not furnished return of income even for one assessment year, as compared to two assessment years earlier, will be subjected to higher rate of TDS. Further, it has also been proposed that while making payment for transfer of immovable property, tax has to be deducted on the sum paid or stamp duty value of the property, whichever is higher. This also puts withholding provisions at par with other provisions where the income is computed in the hands of the transfer considering the sales consideration or stamp duty value, whichever is higher. Further, it has also been proposed to insert a new section for deduction of tax at the rate of 10 per cent by a person responsible for providing to a resident any benefit or perquisite, whether convertible into money or not, which arises from business or profession carried on by such resident.

It has also been proposed to cap the surcharge on long term capital gain on transfer of any long term capital asset at 15 per cent which is expected to benefit the industry at large.

Although, the expectations from the budget in terms of relief for individuals were running very high, no major relief have been granted in the Budget 2022. Consistency in tax policy, focus on reducing litigation with no upward change in tax rates is a welcome move. The Government's focus continues to on digital economy and ease of doing business at large by providing clarity on contentious issues. The Government’s expenditure on agriculture, defense, infrastructure and healthcare is likely to provide the required push to the economic recovery and lay the roadmap for self-reliant India.

Contributed by Vikas Vasal, National Managing Partner -Tax, Grant Thornton Bharat LLP with inputs from Sujay Paul, Chartered Accountant and Sidharth Sipani, Chartered Accountant