Budget 2022: Prominent changes in direct tax regime

Rationalising TDS Provisions: Enterprises often hire the services of agents. This agent often becomes the recipient of many benefits for the services provided by him. These benefits then get taxed in the hands of the recipient agent.

To streamline and keep an eye on these transactions, the enterprise/ person extending the benefits to the agent, will receive certain tax deductions, provided the aggregate value of such benefits exceeds Rs 20,000 during the financial year. There are other ensuing changes mentioned in detail in the Finance Bill in this regard.

IFSCs (International Financial Services Centres): Subject to specified conditions, the following will be exempt from tax:

Income of a non-resident from offshore derivative instruments or from 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.

Since its inception, units located in IFSCs have received a slew of tax benefits. To name a few, concessional rate of 9 percent under Section 115JB (MAT provision), deductions under Section 80LA wherein the said unit is eligible to claim certain income-based deductions. Also, special rates of 15 percent under Section 111A even if no STT (securities transaction tax) is paid as long as the consideration for such transaction is paid in foreign currency along with exemption under Section 10(38) on long-term capital gains on certain specified assets.

Any income from the transfer of any virtual digital asset shall be taxed at a flat rate of 30 percent. Further, no deduction will be available with respect to any expenditure or allowance incurred while computing such income except for the cost of acquisition (COA). Also, loss from the transfer of any other digital asset will not be allowed to be set off against any other income. Further, where any virtual digital asset is provided as a gift, it will be taxed in the hands of the recipient.

Additionally, TDS (tax deducted at source) of 1 percent will be levied on payment of consideration made in respect of such transfer over and above the specified monetary threshold as mentioned in the Finance Bill.

With a view to help taxpayers who committed genuine errors while filing their income tax returns, assessees can now file an updated return within two years from the end of the relevant assessment year (AY). This will save the IT department from the hassle of a Best Judgement assessment under Section 144 or reopening of cases under Section 147.

Currently, assessees have the option to file a return of income (ROI) as per Section 139(1) or a belated return as per Section 139(4). As per Section 139 (5), an assessee can revise a return filed under the above sections including a loss return filed under Section 139(3).

Incentive to Start-ups: Start-ups established before 31.03.2022 were given tax incentives for three consecutive years out of ten years from incorporation. This period of incorporation of eligible start-ups has now been extended by one more year, that is till 31.03.2023, for availing of such tax benefits.

Changes to National Pension Scheme Contribution: The tax deduction limit on employer’s contribution to the NPS account of State Government employees has been increased from 10 percent to 14 percent. This brings them at par with Central government employees and would help in enhancing their social security benefits.

Tax Relief For Differently-Abled: A parent or guardian was hitherto allowed to claim deduction on an insurance scheme taken on a differently-abled person, provided the differently-abled person is the beneficiary in the event of the demise of the said parent or guardian.

However, now, the differently-abled dependent person can claim the payment of annuity and lump sum amount during the lifetime of parents/ guardians, that is, on parents/guardians attaining the age of 60 years.

Deterrence Against Tax-Evasion: In a bid to give clarity on set-off of brought forward losses against undisclosed income detected during search and survey operations governed by Section 132 of the Income Tax Act, the FM has clarified that no such set-off of any loss will be allowed against such undisclosed income.

Litigation Management: To reduce repeated litigation between taxpayers and the IT department, the FM has proposed that where the question of law is identical to one pending in either the Supreme Court or any of the High Courts, the filing of appeal by the department shall be deferred till such question of law is settled by the court.

Incentives Under Concessional Tax Regime: The last date for commencement of manufacturing or production under Section 115BAB has been extended by one year i.e. from March 31, 2023, to March 31, 2024.