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Our honorable FM Smt. Nirmala Sitharaman presented the Union Budget 2022-23 in Parliament today (1.2.2022) at 11 am, quoting the undermentioned Shlok from the Mahabharata.
दापयित्वाकरंधर्म्यंराष्ट्रंनित्यंयथाविधि।
अशेषान्कल्पयेद्राजायोगक्षेमानतन्द्रितः॥११॥
“The king must make arrangements for Yogakshema (welfare) of the populace by way of abandoning any laxity and by governing the state in line with Dharma, along with collecting taxes which are in consonance with the Dharma.”
Mahabharat, Shanti ParvaAdhyaya. 72. Shlok 11
In the Union Budget 2022-23, the GDP @ 9.2% for FY 2021-22, has been predicted with an estimated fiscal deficit pegged at 6.9% (6.4% for FY 2022-23).
In this article, a sincere and honest attempt has been made to decode and demystify all the significant budget amendments being proposed in the Finance Bill 2022. The key budget amendments are discussed as under:
1. No Change in Income Tax Slab Rates has been proposed. Thus, the existing slab rates for all categories of taxpayers will prevail.
2. Income/Profits from transfer of Virtual Digital Assets/Cryptocurrencies to be taxed @ 30% under a new section 115BBH, w.e.f. 1.4.2023. No deduction in respect of any expenditure or allowance shall be allowed while computing such income except cost of acquisition. Further, loss from transfer of virtual digital asset cannot be set off against any other income. TDS on payment made in relation to transfer of virtual digital asset at the rate of 1 per cent of such consideration above a monetary threshold is proposed to be deducted under a new section 194S w.e.f. 1.7.2022. Gift of virtual digital asset is also proposed to be taxed in the hands of the recipient. Further the Reserve Bank of India will introduce an official digital currency in financial year 2022.
3. Provision for filing of ‘Updated Return of Income:
A new sub section (8A) in section 139 of the Income Tax Act, is proposed to be inserted w.e.f. 1.4.2022, enabling the taxpayers to rectify any omissions or mistakes in their correct estimation of income and to furnish an updated return, with an additional tax of 25%/50%, within a period of two years from the end of the relevant assessment year.
Currently, the taxpayers can file their belated/revised returns u/s 139(4)/139(5) respectively, within a period of atleast 3 months prior to the end of the relevant assessment year, or before the completion of the assessment, whichever is earlier.
The Fine Print of the Finance Bill 2022 provides that such an updated return can be furnished only for declaring some additional income and it can’t be furnished for claiming any additional claims or refunds. In other words, this updated return can be furnished only if there is an increase in the tax liability of the taxpayer and it can’t be filed in case of any decrease in the tax liability. Also, such an updated return can’t be furnished in search or survey cases or in the cases where the assessing authority has any information in his/her possession under the Prevention of Money Laundering Act, 2002, or the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, or The Prohibition of Benami Properties Transaction Act, 1988, and such has information has been communicated to the taxpayer before furnishing of such updated return.
Further, the Fine Print, also provides that in addition to the payment of basic tax and penal interest u/s 234A/B/C of the Act, due on such additional income, an amount of additional tax equal to twenty-five per cent of such basic tax and penal interest, is also required to be paid, if such updated return is furnished after expiry of the time available under section 139(4) for filing belated return or under section 139(5) for filing revised return and before completion of period of twelve months from the end of the relevant assessment year. However, if such return is furnished after the expiry of twelve months from the end of the relevant assessment year but before completion of the period of twenty-four months from the end of the relevant assessment year, the additional tax payable shall be fifty per cent of such basic tax and penal interest. These amendments will take effect from 1st April, 2022.
Therefore, this trust reposing gesture of enabling the taxpayers to furnish their updated return, within an extended period of 2 years, aimed at encouraging voluntary compliance, as envisaged in this newly proposed section 139(8A) of the Income Tax Act, has an associated high cost of payment of an additional tax of up to 50% the basic due tax and penal interest, in addition to such basic tax and penal interest.
4. Disallowance u/s 14A in absence of any Exempt Income
Though the Budget Speech is silent on this issue, but the Fine Print of the Finance Bill 2022 proposes to insert an Explanation to section 14A of the Act, to clarify that notwithstanding anything to the contrary contained in this Act, the provisions of this section shall apply and shall be deemed to have always applied in a case where exempt income has not accrued or arisen or has not been received during the previous year relevant to an assessment year and the expenditure has been incurred during the said previous year in relation to such exempt income. This amendment will take effect from 1st April, 2022.
Thus, this amendment by way of insertion of a new explanation to section 14A has been proposed in the Finance Bill 2022, to nullify several judgements of the hon’ble High Courts including the judgements of the hon’ble Delhi High Court in the cases of ‘Cheminvest Ltd vs. CIT reported in CIT (2015) 378 ITR 33 (DEL) and ‘PCIT vs IL&FS Energy Development Company Ltd reported in 250 Taxman 0174, holding that no disallowance u/s 14A of the Act could be made in respect of any expenditure incurred in earning any exempt income, in the absence of any exempt income.
5. Widening the Scope of Section 206AB & 206CCA
The Finance Act 2021 has inserted two new sections 206AB and 206CCA requiring for deduction/collection of TDS/TCS respectively at a higher rate of twice the applicable rate in case of ‘specified persons’ w.e.f. 1.7.2021. ‘Specified Person’ has been defined to mean a person who has not filed the returns of income for both the two assessment years relevant to the two previous years immediately preceding the financial year in which tax is required to be deducted or collected, for which the time limit for filing return of income under section 139(1) has expired and the aggregate of tax deducted at source and tax collected at source in his case is rupees fifty thousand or more in each of these two previous years.
The Finance Bill 2022 has proposed to reduce this two years requirement to one year by amending sections 206AB and 206CCA of the Act to provide that “specified person” to mean as a person who has not filed its return of income for the assessment year relevant to the previous year immediately preceding the financial year in which tax is to be deducted or collected, as the case may be, and the amount of tax collected and deducted at source is Rs. 50,000 or more in the said previous year. These amendments will take effect from 1st April, 2022.
The Legislature has already shifted the burden of tax collection on the common taxpayers by enacting Chapter XVIIB containing TDS provisions. The Finance Act 2021, and now this proposed amendment in Finance Bill 2022 has increased this responsibility of the taxpayer by putting an additional requirement of verifying the return filing discipline of the tax deductees in past one year. Needless to say that for the non-filers of return, this is a heavy associated cost.
6. TDS u/s 194I on Purchase of Property
Section 194-IA of the Act provides for deduction of tax @ 1% on payment on transfer of certain immovable property other than agricultural land.
The Finance Bill 2022 proposes to amend section 194-IA of the Act to provide that in case of transfer of an immovable property (other than agricultural land), TDS is to be deducted at the rate of one per cent of such sum paid or credited to the resident or the stamp duty value of such property, whichever is higher. In case the consideration paid for the transfer of immovable property and the stamp duty value of such property are both less than fifty lakh rupees, then no tax is to be deducted under section 194-IA. This amendment will take effect from 1st April, 2022.
7. Cash Credits under section 68
Section 68 of the Act provides that where any sum is found to be credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year.
Vide Finance Act, 2012, it was provided that the nature and source of any sum, in the nature of share application money, share capital, share premium or any such amount by whatever name called, credited in the books of a closely held company shall be treated as explained only if the source of funds is also explained in the hands of the shareholder.
However, in case of loan or borrowing, the judicial decisions have held that only identity and creditworthiness of creditor and genuineness of transactions for explaining the credit in the books of account is sufficient, and the onus does not extend to explaining the source of funds in the hands of the creditor.
It has been proposed in the Finance Bill 2022 to amend the provisions of section 68 of the Act so as to provide that the nature and source of any sum, whether in form of loan or borrowing, or any other liability credited in the books of an assessee shall be treated as explained only if the source of funds is also explained in the hands of the creditor or entry provider. However, this additional onus of proof of satisfactorily explaining the source in the hands of the creditor, would not apply if the creditor is a well regulated entity, i.e., it is a Venture Capital Fund, Venture Capital Company registered with SEBI.
This amendment will take effect from 1st April, 2023 and will accordingly apply in relation to the assessment year 2023-24 and subsequent assessment years.
Therefore, it has now become mandatory to explain the source of the source also in order to establish the identity, creditworthiness and genuine-ness parameters under section 68 of the Income Tax Act.
8. Amendment in Faceless Assessment u/s 144B under the Act:
The existing section 144B inserted by the Finance Act 2021, mandating for the conduct of the assessments in a faceless manner and in accordance with the prescribed procedure therein, has now been proposed to be replaced with a new section 144B.
In this new section 144B, a by-default right of personal hearing through video conferencing to the assesses, in line with the recent amendments in the Faceless Appeal Scheme, has been vested in the assesses. This is a welcome amendment aimed at reducing probable tussles and litigations.
However, at the same time, the existing sub-section (9) of section 144B, mandating that the entire assessments proceedings shall be considered as nonest in law, if the prescribed procedure of conduct of faceless assessments in section 144B is not being complied with.
It is pertinent to mention here that recently, in numerous High Court Judgements, the faceless assessments for the AY 2018-19, have been set-aside, on the basis of this existing sub section (9) of section 144B. So, the Legislature, in order to reduce litigations, has opted for the omission of the sub-section (9) of section 144B itself, instead of ensuring adherence to the said subsection, providing adequate safeguard for adoption of principles of natural justice, in the conduct of faceless assessments.
9. Litigation management to avoid repetitive appeals by the Department:
The Finance Bill 2022 has proposed to insert a new section 158AB in the Act, to provide that where the collegium is of the opinion that any question of law arising in the case of an assessee for any assessment year (“relevant case”) is identical with a question of law already raised in his case or in the case of any other assessee for an assessment year, which is pending before the jurisdictional High Court under section 260A or the Supreme Court in an appeal under section 261 or in a special leave petition under article 136 of the Constitution, against the order of the Appellate Tribunal or the jurisdictional High Court, as the case may be, in favour of such assessee (“other case”), it may, decide and intimate the Commissioner or Principal Commissioner not to file any appeal, at this stage, to the Appellate Tribunal under sub-section (2)of section 253 or to the High Court under sub-section (2) of section 260A against the order of the Commissioner (appeals) or the Appellate Tribunal, as the case may be.
10. Incentives for Start-ups: Eligible start-ups established before 31.3.2022 had been provided a tax incentive for three consecutive years out of ten years from incorporation. The Finance Bill 2022 has proposed to extend the period of incorporation of the eligible start-up by one more year, that is, up to 31.03.2023 for providing such tax incentive.
11. Incentives for newly incorporated manufacturing entities under concessional tax regime
A concessional tax regime of 15 per cent tax was provided for in section 115BAB of the Income tax Act, for newly incorporated domestic manufacturing companies. The Finance Bill 2022 has proposed to extend the last date for commencement of manufacturing or production under section 115BAB by one year i.e. from 31st March, 2023 to 31st March, 2024.
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