Income Tax Changes Announced in Budget 2022

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The latest Union Budget 2022, has put the focus back on recovery and growth after the negative GDP growth rate of the last financial year. The budget speaks volumes about how the government is looking forward to putting the industrial foundations in India.

The income tax changes announced in the budget put the impetus on strong manufacturing, technology and financial sector.

Direct Income Tax Changes for Individuals

Union Budget 2022 announced very few changes to the direct tax rates and rules for individual taxpayers. The prominent of these changes are as follows:

1. LTCG Surcharge Limit

Surcharge on LTCG (long-term capital gains) has been capped at 15% for any amount of gains. Earlier this used to go up to 37%.

2. Deduction for Dependants with Disability

A lump-sum deduction will be available if you invest in an annuity scheme to secure the disabled dependent’s retired life. Meaning, the annuity will pay a regular sum once the dependent is 60 years old.

For now, this deduction was only available for life insurance plans which paid benefit only after the death of the policyholder.

3. Exemption for Covid-19 Related Payments

Following amounts will be exempt from tax retrospectively starting FY 2019-20 for Covid-19 related illness:

a) You have received any payment from anyone for your or your family member’s treatment.
b) The amount employer paid to the family of the employee who died from Covid-19 related illness within 12 months of the death.
c) A sum of up to Rs 10 lakhs received by a family member of the deceased from anyone due to the death of a family member within 12 months of the death.

4. Extended ITR Revision Period

Additionally, the Union Budget 2022 added another year to the time limit for filing revised ITR. Starting FY 2022-23 you can revise your ITR before the completion of FY 2024-25.

COVID-related exemptions have been allowed retrospectively. Meaning, it applies for any sum received as far back as in the financial year 2019-20. CBDT is yet to come out with clarifications on the terms and conditions applicable to claiming these deductions and exemptions.

Corporate Income Tax

Corporate tax has not received any changes in rates, except the surcharge rate cap for AOPs. Association of Persons where only corporates are members surcharge on income tax has been capped at 15%.

On the other hand, customs duty has been increased on the import of many commodities and products to promote manufacturing within the country. The major products which faced the increase include imitation jewellery, parts of electronic toys, loudspeakers, earphones and solar panels.

Goods and Services Tax has received more screws to tighten the command over Input Tax Credit and return filing.

Following changes have been made to corporate taxes in the Budget 2022:

a) Conversion of unpaid debenture interest to be considered as such and no deduction will be allowed on this interest
b) Deduction for expenses incurred on activities and perquisites given to people where this transaction violates a law will not be allowed
c) The tax holiday will apply for start-ups incorporated till 31st March 2023 and manufacturing facilities starting operations till 31st March 2024
d) Concessional tax rates on dividends Indian companies received from specified foreign companies has been withdrawnd) Concessional tax rates on dividends Indian companies received from specified foreign companies has been withdrawn

Additionally, central SEZ schemes will be replaced with State-Centre shared schemes with new legislation. This will allow more state participation in the development of the economic zones and businesses.

Also Read about - Corporate Tax

Introduction of Digital Money & Tax on Virtual Assets

Union budget 2022 has set the foundation for futuristic legislation with the following announcements:

a) Launch of Central Bank Digital Currency within the financial year 2022-23
b) Tax at 30% on gains from transfer of virtual digital assets
c) Losses from virtual digital asset transactions cannot be set off against any other income, nor can you carry them forward to the next FY
d) TDS at 1% must be deducted on any payments made to the Indian resident for the transfer of a digital asset
e) TDS at 10% of the value of the benefit or perquisite paid to a resident individual for business or profession (applicable from 1 July 2022)

The majority of other income tax changes primarily concern the corporates and specified enterprises. Overall the budget has done little to change the existing income tax rates and rebates for the individual taxpayer. However, has been aggressive with synchronising corporate taxation to either bring it at par or to promote manufacturing and indigenous development.

Changes that will Impact Insurance Sector

The present 2022 budget has focused on the core sectors and infrastructure development. While few positive developments will eventually aid insurance sector growth later, for now, there was no direct mention.

Hopefully, once the economy is back in its robust mode insurance sector will get due attention for further growth.

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised to exercise their caution and not to rely on the contents of the article as conclusive in nature. Readers should research further or consult an expert in this regard.