The budget brings together the government’s journey towards [email protected] with a focus on its four pillars – PM Gati Shakti, Inclusive Development, Productivity Enhancement and Investment Finance
In Budget 2022, the Minister of Finance continues to deliver on the government’s promise to drive growth, create jobs and achieve inclusive development. The budget sets out the government’s journey towards [email protected] by emphasizing its four pillars – Prime Minister Gati Shakti, inclusive development, improving productivity and financing investment. Here are the main proposals for direct taxation relevant to the business sector.
Taxation of virtual digital assets
The 2022 budget proposes to bring into the scope of the tax gains made on the sale of a virtual digital asset (VDA). VDA transfer earnings would be taxed at 30%, with the only deduction allowed being the cost of acquiring the VDA. VDA is defined as any asset generated by cryptographic or other means (cryptocurrencies as they are commonly known) and non-fungible tokens, but excludes Indian or foreign currencies.
In addition, losses resulting from the transfer of VDA cannot be carried forward or offset. Any donation of ADV will be subject to tax in the hands of the recipient.
In order to be able to track VDA transactions, it is also proposed to require persons paying the VDA transfer consideration to withhold taxes at 1% if the annual payment exceeds INR 50,000 in the case of a resident beneficiary and INR 10,000 in all. other cases. It appears that the VDA’s proposed tax regime would apply to transfer types whether the VDA is held for business or capital purposes.
Provision for the provision of an up-to-date declaration
Restoring trust in taxpayers and leveraging data available from the tax department to mobilize revenue and achieve better compliance in a litigation-free environment, the 2022 budget proposes to allow certain taxpayers to file an updated return in 24 months from the end of the year in which the return was to be filed. These returns may be filed after payment of any taxes and interest due, with an additional liability of 25% or 50% of such taxes and interest depending on when this updated return is provided.
This provision does not cover all assessments and cases where there is a search and seizure case or cases under the Prevention of Money Laundering Act 2002/Black Money Act or where information has been received from another country under the tax treaty are specifically excluded.
Extension of the sunset clause for start-ups and manufacturing companies
The favorable corporate tax rate of 15% applies to new domestic manufacturing companies provided they begin operations no later than March 31, 2023. The government has also proposed to extend the March 31, 2023 expiry to March 31, 2024 to help the business community pandemic-induced delays and build momentum for manufacturing.
Similarly, the start-up tax exemption was available for start-ups incorporated before April 1, 2022 – it is proposed to extend this period until March 31, 2023. This extension will benefit the start-up community .
Advantageous tax rate for dividends from foreign companies
In an attempt to align the taxation of dividends from a foreign subsidiary with that of dividends received from an Indian subsidiary, the preferential tax rate on dividends from a foreign subsidiary of 15% has been removed.
Dispute management system
It is proposed to put in place a litigation management system allowing a college of two or more CCIT/PCIT to decide whether the revenue should bring an appeal on a question similar to that already pending before the High Court or the Supreme Court of jurisdiction.
However, if the initial appeal is decided against the revenue, the revenue has been granted an option to appeal the case.
Amendments voiding court precedents
FM proposed the following amendments to overturn certain court precedents and clarify legislative intent:
- The disallowance of expenses incurred to earn tax-exempt income applies even if the taxpayer does not earn any exempt income in a given tax year;
- Health and education costs are tax-based and therefore not deductible as business expenses
- Any expense incurred in violation of any law/regulation and for any offense prohibited by law in India and abroad shall not be a deductible business expense
- Conversion of unpaid interest on bank/NBFC loans to another loan or debenture would not be allowed as a deduction on the grounds that such conversion is an implied payment
Cases of business reorganizations/successions
In the event of a corporate reorganization, it is proposed that the proceedings instituted against the entity replaced, during the term of the reorganization, be deemed to have been instituted against the successor. Therefore, although the predecessor ceased to exist after the reorganization, the tax dispute would continue to be valid.
Tax advantages for the IFSC
To further encourage investment in the IFSC, the budget proposes to exempt from tax a non-resident’s income from offshore derivatives, or over-the-counter derivatives issued by an offshore banking unit, income royalties, vessel lease interest and income received from portfolio management services.
While the above are just a few key direct tax proposals from Budget 2022, overall the proposals are aligned with the government’s intention to provide clarity, reduce litigation and should give the necessary growth impetus for the wider economy.
(Disclaimer: These are the personal opinions of the author.)