On Feb 1, 2022, Finance Minister Nirmala Sitharaman presented the 2nd Digital Union Budget. This year’s budget was an attempt towards a stable and predictable tax regime, simplification and promotion of voluntary tax compliance, and reducing litigations.
- Personal Income-tax:
- No changes were made in slab rates or deductions.
- State Government Employees’ Deduction increased from 10% to 14% of their salary on the employer’s contribution to the NPS. To bring parity among government employees, deduction to State Government Employees has been increased to 14% of salary on employer's contribution to NPS which was already allowed to Central Government employees.
- Introduction of updated tax return facility:
- Taxpayers who have committed omissions or mistakes in estimating their Income for tax payment can file an updated return can be filed within 2 years from the end of the relevant assessment year.
This is a wise decision to introduce a facility so that users can update their missing Income with a small tax to avoid notices. This will increase transparency and voluntary tax compliance from taxpayers.
- Taxpayers who have committed omissions or mistakes in estimating their Income for tax payment can file an updated return can be filed within 2 years from the end of the relevant assessment year.
- Tax relief to parents of persons with disability:
- The parents/guardians of differently-abled children can claim deduction on insurance schemes taken for them even if payment of annuity/ lump sum is available to the differently-abled child during the lifetime of parent/guardian attaining the age of 60 years.
Earlier, parents/guardians of differently-abled children could only claim deduction on insurance schemes, if payment of annuity/ lump sum was available to the differently-abled child after the death of the subscriber. This is a considerate step for supporting parents of differently-abled children.
- The parents/guardians of differently-abled children can claim deduction on insurance schemes taken for them even if payment of annuity/ lump sum is available to the differently-abled child during the lifetime of parent/guardian attaining the age of 60 years.
- Surcharge on LTCG:
- Surcharge on Long term capital gain arising on the transfer of any type of asset( listed security, unlisted security, or any other) is capped at 15%. For individuals in higher tax brackets, the cap on surcharge will be a relief.
- Virtual Digital Asset (Bitcoin / NFT):
- Any Income from the transfer of any virtual digital asset shall be taxed at the rate of 30% (no deduction in respect of any expenses except the cost is allowed).
- Loss from the transfer of digital assets cannot be set off against any other Income.
- TDS on payments made for the transfer of virtual assets will be 1% of such consideration above a monetary threshold.
- Although, it has not been clarified whether realized or unrealized gains will be taxed. It is plausible that tax will be applicable on realized gains. Also, it is unclear if taxes will be on gains that are converted to rupees or gains even within the Crypto/NFT ecosystem not converted.
It is good to see the government finally regulating high-risk investments/transactions such as the Cryptos and NFT. Crypto Exchanges will now comply with this new regulation which will be very interesting to see being implemented. Further, TDS is said to be on "payment for transfer" of virtual assets which is ambiguous. Also, what about the treatment of interest earned on cryptocurrencies?
The government with this step will earn tax on cryptocurrency transactions and also de-incentivize people to engage in it. A lot still needs to be clarified in this regard.
- Gift of virtual digital assets:
- Gifts will also be taxed in the hands of recipients at the rates mentioned in the point of Virtual Digital Asset above.
- Incentives for startups:
- The period of incorporation of eligible startups was extended to 31.03.23 for providing tax incentives. Such startups will be eligible for availing a deduction of 100% of profit for three years in a block of seven years provided that annual turnover does not exceed Rs.25 crores in any financial year.
- Digital Rupee:
- RBI will launch its own digital currency powered by blockchain. The value of that digital rupee will be the same as the physical rupee.
A clarification with regards to Health and education cess was also issued that it cannot be allowed as a deduction while calculating profits for the purposes of Income-tax.
This year's budget seems to be futuristic and progressive with no major changes other than for Virtual Digital Assets. What are your views on this year's budget and how is it different from expectations? Let us know in the comments below.
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