Tax provisions for individuals in the Budget 2022

With the greatest enthusiasm and anticipation, the big Indian middle class observed the Union Budget 2022 this time. Two years into the pandemic, the expectations were of significant tax benefits for this often-overlooked demographic segment. Moreover, it was also assumed that the ballot box thinking would play a role in providing some tax sops, given approaching elections in some Indian states. In fact, hopes were also raised in the light of the Economic Survey 2021-22 presented in the Parliament on 31st January 2022 which hinted at bigger tax reliefs for all types of taxpayers, including salaried individuals, senior citizens, NRIs and pensioners.

However, these hopes have fizzled out in the absence of any changes to the existing tax rates and income tax slabs during the budget presentation on first February. As per the budget individual taxpayer will continue to be charged the same tax rates as before, depending on the old or new tax regime one chooses for the financial year 2022-23.

It is not as if there has been no change in the policy related to taxes. Some of the changes that were mentioned and which could affect the individual assesses can be listed down as below:

1. Tax provision on Virtual Digital Assets?- There is a flat 30% tax on profit on such transactions without providing for any deductions except acquisition cost. The recipient of the gift of virtual digital assets (cryptocurrencies) would be subject to the gift tax. It can be seen as a good step in terms of bringing VDA under the tax scope, given the significant number of transactions related to digital assets. India has the highest number of crypto-owners and it makes sense to bring them under the tax net. However, taxing the profit arising out of such transactions but not allowing the set-off of losses against other income could be detrimental to transparency in reporting
2. Tax relief to differently-abled individuals - For insurance policies bought by parents/guardians of disabled children, deduction on the pay-out can now be given to the dependant even if the parent is alive and over 60 years. This deduction was earlier applicable only if the lump sum or annuity was paid at the death of the policy holder. This move brings great relief to the differently-abled individuals and the policyholders who get the sum assured benefit once the income source of the policy-holder dries out due to retirement after 60 years of age.
3. Provision for filing updated tax returns - The facility to file updated returns will be available till two at the end of the relevant assessment year or in other words three years at the end of the relevant financial year on payment of 25%- or 50%- income tax on the additional income. This decision would help the assessee in amending the omissions or mistakes in estimating his/her taxable income. This would also help in minimising the number of notices served by assessing officers or the appeals made by the individual taxpayers thereby reinstating the trust between the two parties.
4. ?No set-off of any loss against undisclosed income - This is with respect to the cases where individuals or entities have set off the brought forward losses against undisclosed income detected in search operations. The government is basically tightening the income tax net with no scope for individuals or entities to wiggle out of their liability. Neither can the business entities use the business losses as a set-off mechanism to argue against money being forfeited.
5. Capping on Surcharge on long term capital gains (LTCG) to 15% - While the LTCG on listed equity shares, units etc. have a maximum surcharge of 15%, the other long term capital gains like those on capital assets, unlisted securities etc were currently subjected to a graded surcharge (dependent on the tax slab of the individual) which could even go up to 37% in some cases. In this move, the government has rationalised the surcharge to one rate.??This is beneficial especially for the HNI segment (those with income above 2 crores), NRIs investors and overseas funds. This decision eliminates the inconsistency in the tax structure with respect to different classes of capital assets. This decision may also bring about a surge in investments in capital assets.
6. TDS Provision on perquisites to a resident - Any person providing any benefit/prerequisite to a resident, arising from business/profession carried out by such resident, will have to deduct tax at the rate of 10% on the value of such benefit/prerequisite provided the value of such benefit/perk exceeds Rs 20,000.
7. Tax exemption for NRIs - Income from offshore derivative instruments, royalty and interest on leasing ship, and portfolio management services based out of International Financial Services Centres or GIFT city will be exempt from tax for NRIs. The intended benefits are obvious. This should bring about increased private investment in these segments.
8. Exemption of amount received for medical treatment of or on account of death due to COVID-19 - Any income received by an employee from the employer in respect of expenditure incurred by the employee on his/her or family member’s medical treatment of any illness relating to COVID-19, will not be considered prerequisite and therefore, will not be taxable as salary for the employee. The exception applies in the case of the income received by the family member of the deceased taxpayer. So many instances have been seen during these two pandemic years where employers, colleagues and well-wishers have been offering financial help to taxpayers/family members of the deceased taxpayer for expenses incurred for treatment of Covid-19. Removing this from the tax net also shows the humanitarian side of the regime.
9. Parity for the State Government employees - So far the tax benefit of 14% on the investment in NPS were limited to the central government employees, whereas for the employees of the state government employees and the private sector, the benefit was limited to 10% of their contribution to NPS. From this year onwards, the state government employees are also brought at par with those of the Central government. For the employees of the private sector, this decision still screams unfair.
10. Higher TDS for the defaulters or the non-filers - If any assessee has not filed the tax returns in the previous year(s), there is a provision to deduct higher TDS. 10% to 30% TDS would be deducted on FD interest income, rental income, profit from the sale of property, dividend income etc.

The overall budget looks progressive and have been designed to keep faster growth in mind. A special focus on the digital economy, fintech industry, private and public capital investment together is expected to give a greater boost to the economy. Although the estimated economic growth of 9.2% for the current year doesn't seem to be easily achievable, the proposed 4 pillars of the budget – productivity, climate action, financing investments and PM Gati Shakti plan should give much-needed thrust.