UNION BUDGET ANALYSIS| FINANCE ACT 2022| INCOME TAX & GST

February 8, 2022
Direct Taxation
CA. Kavit Vijay

Union budget was presented by Hon’ble Finance Minister on 1^st Feb 2022 in Parliament wherein various amendments are proposed under Income Tax Act and few changes are also proposed under Goods and Service Tax Act.

In this article, you will get a detailed analysis of amendments proposed by the Finance Act, 2022 in Income Tax and Goods and Service tax.

INCOME TAX

1. COVID-19 Related Tax Exemptions (To be inserted with effect from 01.04.2020, i.e., Applicable from AY 2020-21 onwards)

Any amount received by an employee in respect of expenditure actually incurred for medical treatment of COVID-19 related illness of his own or any of his family members shall not be subject to Income Tax. (Section 17).
Any amount received by a person from any person in respect of expenditure actually incurred for medical treatment of COVID-19 related illness of his own or any of his family members shall not be subject to Income Tax. (Section 56).
In case of death of any person due to COVID-19, Any amount (without any limit) received by family of deceased person from employer of deceased person shall not be subject to Income tax provided that such amount received within 12 months from date of death. (Section 56).
In case of death of any person due to COVID-19, Any amount received by family of deceased person from any other person upto INR 10 Lacs shall not be subject to Income tax provided that such amount received within 12 months from date of death. (Section 56) .

2. Income Tax on Virtual Digital Assets (to be inserted with effect from 01.04.2023)

“Virtual Digital Asset” shall mean any information or code or number or token (not being Indian currency or foreign currency), generated through cryptographic means or otherwise.

2.1 Income Tax on transfer of Virtual Digital Assets

As per newly inserted Section 115BBH of Income Tax Act, Any income from transfer of Virtual Digital Asset shall be chargeable to Income Tax @ 30%.
While computing income on transfer of virtual digital assets, deduction shall be allowed only for cost of acquisition and no deduction shall be allowed with respect to any other expenditure or allowance.
No set off of losses shall be allowed against income from transfer of virtual digital asset.
Further, losses from transfer of the virtual digital asset shall not be set off against any other income and also shall not be allowed to carried forward.

2.2 TDS on Virtual Digital Asset (to be inserted with effect from 01.07.2022)

As per newly inserted section 194S, TDS shall be deducted @ 1% on consideration payable to any resident for transfer of a virtual digital asset.
Where consideration for transfer of virtual digital asset is received wholly in kind or partially in kind, then person responsible for paying consideration shall ensure that tax in respect of such consideration has been paid before releasing such consideration.
Provisions of Section 206AB, i.e., TDS deduction at higher rate for non-filers of Income Tax Return, shall not apply to specified person*
No TDS is required to be deducted in the following cases:
- Where consideration is payable by specified person* and aggregate value of consideration does not exceed INR 50,000 during the Financial year; or
- Where consideration is payable by any person other than specified person* and the aggregate value of consideration does not exceed INR 10,000 during the Financial year
Specified person shall mean:
- an individual or HUF whose total sales or gross receipts does not exceed INR 1 Crores in case of business or INR 50 Lacs in case of the profession, during the preceding financial year.
- an individual or HUF not having any income under the head PGBP.

3. Clarification with respect to various Allowance of Expenditures

3.1 Disallowance of Expenditure related to exempted Income (Section 14A)

It has always been a matter of dispute that if during any year no exempted income accrues or arises then whether expense related to exempted income incurred during such year shall be disallowed in pursuance of Section 14A or not.
Finance Act, 2022 has clarified that disallowance under Section 14A shall apply even in those years also when no exempted income is accrued or received.

3.2 Disallowance of Interest converted into Debentures (Section 43B)

As per Section 43B, deduction with respect to interest on any loan or borrowing from any NBFC, Public Financial Institutions or State Financial corporations etc. shall be allowed during the year of payment only.
Finance Act, 2022 has clarified that if any interest payable is converted into debentures and liability of payment of interest is deferred to a future date then such interest shall not be considered as actually paid.

3.3 No Deduction with respect to surcharge and cess (Section 40(a)(ii))

No deduction is allowed with respect to any tax paid by the assessee.
Finance Act, 2022 has clarified that tax includes cess and surcharge. Accordingly, no deduction shall be allowed will to cess and surcharge.

4. TDS on Perquisites (Section 194R)

A new section 194R has been proposed to be inserted which provides that TDS shall be deducted @ 10% on any perquisite or benefit paid to a resident in the course of business or profession.
No TDS shall be deducted where the aggregate value of benefits or perquisite do not exceed INR 20,000 during the financial year.
Further, this section shall not apply to Individual or HUF whose total sales, gross receipts or turnover does not exceed INR 1 Crore, in case of business, or INR 50 Lacs, in case of profession, during preceeding Financial year.
This amendment shall take effect from 1^st July, 2022.

5. Incentives for Units in International Financial Service Centre (IFSC)

any income received by a non-resident from a portfolio of securities or financial products or funds, managed or administered by any portfolio manager on behalf of such non-resident, in an account maintained with an Offshore Banking Unit in any IFSC shall be International Financial Services Centre shall not be deemed to accrue or arise in India.
Finance Act, 2022 propose to exempt income of a non-resident:
- From the transfer of offshore derivative instruments or over the-counter derivatives entered into with an OBU of an IFSC.
- By way of royalty/interest income on account of lease of ship (ship or ocean vessel or engine of ship or ocean vessel or any part thereof) to an IFSC unit, subject to conditions
- To extend the tax holiday for income arising from the transfer of a ship that is leased by a unit of IFSC, subject to conditions.

These amendments are proposed to be effective from FY22-23.

6. Refund of TDS on payment to non-residents

Where TDS on payment to a non-resident, other than TDS on interest, is to be born the payer and such person after making payment of TDS claims that no tax was required to be deducted on such income then he may file an application before AO for a refund of such tax. Refund application must be filed within 30 days from the date of payment of such tax.
A.O. shall pass the order, after giving an opportunity to heard, within 6 months from end of the month in which application is received.
Such amendment shall become applicable from 01.04.2022.

7. Amendment in TDS/TCS Provisions

7.1 Amendment in Provisions of TDS/TCS for non-filers of Income Tax Return (Section 206AB)

Under existing provisions of Section 206AB, higher rate of TDS is required to be deducted from a person who has failed to file Income Tax return of 2 preceding Financial years for which the due date of filing of return has expired u/s139(1) and the aggregate amount of TDS/TCS is INR 50,000 or more in each of these two previous years.
Finance Act, 2022 has changed the non-filing requirement from 2 years to 1 years. Therefore, TDS u/s 206AB shall be deducted if a person fails to file his Income-tax return for the previous year preceding the financial year in which tax is required to be deducted/ collected and due date of filing such ITR has been expired and aggregate amount of of TDS and TCS is INR 50,000 or more.
Section 206AB has been extended to TDS under Section 194-IA (TDS on transfer of Immovable Property), 194-IB (TDS on payment of rent by individual and HUF) and Section 194M (TDS on certain payments by Individual and HUF).

7.2 TDS on Immovable Property (Section 194-IA)

TDS under Section 194-IA on the transfer of immovable property is required to be deducted @1% on sales consideration.
However, TDS deduction is proposed on higher on “Sales Consideration” or “Stamp Duty value”
Amendment shall take effect from 01.04.2022.

8. Rationalisation of provisions relating to taxation of charitable trusts and approved educational institutions/hospitals, etc.

Finance Act, 2022 has proposed to maintaining of prescribed books of accounts mandatory for certain charitable trusts and approved educational institutions/hospitals, etc.
Extension of the tax on accreted income regime to approved educational institutions/hospitals, etc.
Provision and procedure is provided for cancellation of registration/approval of charitable trusts and approved educational institutions/hospitals etc., in case of specified violations.
Levy of penalty where the income of charitable trusts and approved educational institutions/hospitals, etc., is applied for the benefit of the trustees or other specified persons.

9. Filing of Updated Income Tax

Any person, whether or not he has filed his original, belated and revised income tax return, may file an updated income tax return within 24 months from the end of relevant Assessment year.
However, the option of filing of an updated income tax return shall not be allowed:
- In case of return of loss
- Updated return has the effect of decreasing total tax liability determined on the basis of original, revised or belated income tax return
- Update return results in refund or increase in refund amount determined on the basis of original, revised or belated return.
- A person shall not be eligible to file updated return where:
  - A search has been initiated under section 132 or under section 132A or
  - A survey has been conducted under section 133A or
  - A notice has been issued to the effect that any money, bullion, jewellery or valuable article or thing, seized or requisitioned under section 132 or section 132A

for the assessment year relevant to the previous year in which such search is initiated or survey is conducted or requisition is made and two assessment years preceding such assessment year

Additional income tax payable of 25 percent of ‘aggregate tax and interest’, if updated return is filed after the expiry of time limit to file belated/revised return but within one year from the end of the relevant AY and 50 percent thereafter.
The payment must be made before filing of the updated return.
Assessment in case of the updated return to be completed within nine months from end of FY in which the updated return is furnished.

10. Other Amendments

Penalty for failure to answer questions, sign statements, furnish information, returns or statements, allow inspections, etc. under section 272A has been increased from INR 100 per day to INR 500 Per day.
The prosecution provisions for second and subsequent offences for failure to pay TDS has been proposed to be extended for TCS provisions.
Income under head PGBP are exempted for 3 consecutive years for eligible start-ups companies and LLP involved in eligible business u/s 80-IAC of Income Tax Act. Those companies and LLP are eligible for exemption which are incorporated before 1^st April 2022. Finance Act, 2022 has extended exemption to Companies and LLPs incorporation before 1^st April, 2023.
Changes has been suggested in procedure of Faceless Assessment as provided under Section 144B.
Change in share-holding of a Public Sector Company shall not effect the carry forward of losses under Section 79 provided that ultimate holding company, immediately after the completion of strategic disinvestment, continues to hold, directly or through its subsidiary or subsidiaries, at least 51% of the voting power of such company in aggregate.
Cash Credits received shall not be considered as satisfactory unless the person in whose name such credit is recorded also offer an explanation about the nature and source of such credit and Assessing officer finds such explanation satisfactory. (Section 68).
Reduction of goodwill from block of assets to be treated as transfer for purpose of capital gains.
Definition of “Slump Sale” u/s 2(42C) has been amended to change from “Sales” to “Transfer”.
Litigation management measures are introduced to reduce litigation/appeal on identical question of law with effect from 01.04.2022.