The Union Budget 2022-23 provides a vision to transform India into a resilient economy. Overall, Budget 2022 can be considered a balanced one that would bolster growth. However, the following are the significant changes discussed below that may impact your business.
I. Direct Taxes
Tax rates
- For Individuals - Surcharge on the transfer of all long-term capital gains has been capped at 15%.
Beneficial lower tax rate (currently 15%) on dividend received by an Indian company from a foreign subsidiary/joint venture is to be withdrawn from 1 April 2022.
New taxation regime introduced for Virtual Digital Assets
- Income from transfer of Virtual Digital Asset to be taxed at a flat rate of 30%. No deduction while computing income except the cost of acquisition of the asset.
- Withholding tax at the rate of 1% on payment to resident towards purchase consideration for transfer of Virtual Digital Asset.
Ease of doing business
- Relaxation in condition for availing concessional tax regime for manufacturing companies. The companies can commence manufacturing till 31 March 2024 as against 31 March 2023.
- Tax Holiday extended for startups incorporated till 31 March 2023.
Providing tax certainty
- Surcharge and cess are not to be allowed as business expenditure. This will be effective retrospectively from 1 April 2005;
- Dividend stripping provisions to apply for InvITs, REITs, and AIF. Bonus stripping provisions extended to cover securities as well.
Addressing COVID -19 impact
- COVID-19 related tax exemption for the amount received for medical expenses for self and family without limit.
- Ex-gratia received by a family member of the deceased person:
- No limit if received from the employer.
- Up to INR 1 million from any other person.
Tax compliance and procedural changes
- Updated tax returns are allowed to be filed in certain situations up to two years from the end of the relevant assessment year, subject to payment of additional taxes (25% to 50% of income tax and interest). This is different from the filing of a revised tax return
Indirect Tax
GST
- ITC availment would be allowed only if reflected in GSTR-2B.
- The due date for ITC availed extended till 30 November of the following financial year.
- Similarly, GST returns can be rectified as well as credit notes can be issued up to 30 November of the following financial year.
- Interest @ 18% leviable on reversal of ITC wrongly availed and utilized.
- Stricter GST registration cancellation provisions introduced for return non-filers.
- Furnishing of GSTR-1 shall be mandatory to file GSTR-3B for a tax period.
- Refund claims towards supplies to SEZs can be filed within two years from the date of furnishing GSTR-3B for the relevant tax period.
- Transfer of balance in Electronic Cash Ledger allowed from one distinct person to another (with same PAN).
- Form and manner prescribed for claiming refund of any excess balance lying in the Electronic Cash Ledger.
SEZ
- SEZ law shall be replaced with new legislation, enabling States to become partners in ‘Development of Enterprise and Service Hubs.’
- The Customs administration shall be fully IT-driven and function on Customs National Portal, focusing on higher facilitation and with only risk-based checks.
Customs
- 350 exemption notifications to be withdrawn, and exemption related to capital goods and project imports would be phased out.
- Officers of Director General of Revenue Intelligence (DRI), Audit and Preventive empowered to initiate recovery proceedings as ‘Proper Officers.’
- Concurrent empowerment of two or more Customs officers introduced along with the expansion of criteria for selection of such officers.
- An enabling provision proposed to curb undervaluation by importers.
- Original jurisdictional authority to undertake proceedings like re-assessment, re-adjudication, etc., post completion of investigation or audit.
- Advance rulings to be valid for three years from the date of pronouncement or till there is a change in law or facts, whichever is earlier. An advance ruling application can now be withdrawn at any time before the pronouncement.
- IGCR Rules amended to automate the process and ensure transparency.
The government has continued to support the Make in India initiative and create an ease of doing business in India. From a tax perspective, the objective of providing a stable and predictable tax regime has been maintained by not tinkering with tax rates. While the Budget may echo a theme of strategic intent and carry provisions that may bolster and further boost the economy, some amendments may require businesses to re-examine their tax position and processes.
