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Key Direct Tax Proposals Budget 2022

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February 1, 2022

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9 mins read

Key Direct Tax Proposals Budget 2022

The Finance Minister of India has tabled the Finance Bill 2022 before the Parliament today. Some of the key direct tax proposals provided in the Finance Bill 2022 , that may impact you are as under : –

Individual taxation :-

  • There has been no change in the tax rates applicable for companies.
  • Tax Relief to persons with disability u/s 80 DD : Lumpsum payment or Annuity payment  to differently abled person , who are dependent during the lifetime of parents/guardians, i.e., on parents/guardians attaining the age of 60 years.
  • Exemption of amount received for medical treatment and on account of death due to COVID-19 – Any sum paid by the employer in respect of any expenditure actually incurred by the employee on his medical treatment or treatment of any member of his family in respect of any illness relating to COVID-19  shall not form part of “perquisite” (subject to prescribed conditions).
  • Deduction of TDS on purchase of immovable property from resident – 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 /credited to the resident or the stamp duty value of such property, whichever is higher

Corporate Taxation – Key Direct Tax Proposals Budget 2022

  • Tax Rates : – There has been no change in the tax rates applicable for companies.
  • Concessional tax rate of 15% for manufacturing companies – Extension in commencement of manufacturing – Section 115BAB : – – Under existing Regulations, to opt for concessional tax rate of  15% companies are required to meet the following requirements :
    • To be set up and registered on or after 01.10.2019, and
    • To commence manufacturing or production of an article or thing on or before 31.03. 2023.
      In respect of the second condition, the date of commencement of manufacturing/production has been extended by one year i.e. from 31.03.2023 to 31.03.2024.
  • Time period for setting up eligible start-ups extended – Time period for setting up eligible start-ups , for claiming exemption under section 80-IAC, has been extended from 31st March 2022 to 31st March 2023.
  • Allowability of Surcharge and Cess as Business ExpenditureIt has been proposed  that any amount paid for education cess and surcharge shall not be treated as allowable expenses under section 40(a)(ii).
  • Option to file Updated return: –An assessee can file an updated return on payment of additional tax of 25%/ 50% of tax and interest (computed in a specified manner), within a period of 1/ 2 years respectively, from the end of the relevant AY. Under the existing provisions, revision of return was permissible only up to the end of the relevant AY .
  • Dividend received from overseas companies – Section 115BBD of the Act provides for a concessional rate of tax of 15 % on the dividend income received by an Indian company from a foreign company in which the said Indian company holds 26 % or more in nominal value of equity shares (specified foreign company). From AY 2023-24, the concessional rate shall no longer be available.
  • Section 14A disallowance of interest can be made, even if no exempt income accrued during the year – An Explanation is proposed to be introduced to Section 14A of the Act to clarify that section 14A shall apply even where exempt income has not accrued or arisen during the previous year relevant to an AY.
  • Goodwill – Goodwill of a business or profession is not considered as a depreciable asset . Where goodwill is purchased by an assessee, the purchase price of the goodwill will continue to be considered as cost of acquisition for the purpose of computation of capital gains under section 48 of the Act , subject to the condition that in case depreciation was obtained by the assessee in relation to such goodwill prior to the assessment year 2021-22, then the depreciation so obtained by the assessee shall be reduced from the amount of the purchase price of the goodwill.
    From AY 2021-22,  the assessment year 2021-2022, reduction of goodwill of a business or profession, from the block of asset, shall be deemed to be transfer.

GENERAL – Key Direct Tax Proposals Budget 2022

  • Surcharge
    Surcharge has been capped at 15% on income arising from dividend and gain (Long term + Short term) .
  • Litigation management to avoid repetitive appeals by the Department : –
    Where a question of law in the case of an assessee is identical to a question of law which is pending in appeal before the jurisdictional High Court or the Supreme Court, the filing of further appeal in the case of this assessee by the department shall be deferred till such question of law is decided by the jurisdictional High Court or the Supreme Court.
  • Set off of any loss shall not be allowed against undisclosed income
    No set off of any loss shall be allowed against undisclosed income detected during search and survey operations.
  • Specific tax regime for taxing Virtual Digital Assets [‘VDA’]: –
    • Any income arising from transfer of VDA shall be taxed at the rate of 30%.
    • No deduction for expenditure shall be allowed while computing taxable income, except cost of acquisition.
    • Any loss arising on sale of VDA, cannot be set off against any other income.
    • Gift of VDA shall be liable to tax in the hands of recipient.
    • TDS @ 1% shall be deducted on payment towards transfer of VDA.
  • TDS on perquisite from business or profession
    Section 194R is proposed to be inserted to provide that the person responsible for providing to a resident, any benefit or perquisite, arising from carrying out of a business/ profession by such resident, shall, deduct tax at the rate of 10%, where the amount exceeds 20,000.

Arinjay Jain

Bio of author

Arinjay is a Chartered Accountant with more than 20 years of post-qualification experience. He worked as Director, in the M&A Tax Division at KPMG in India. Presently, he is advising several MNCs in UAE on Economic Substance Regulations and impact of the UAE Corporate Tax Law on their business and clients across globe on International Tax issues . He is a well recognised Trainer of International Tax and UAE Corporate Tax. The areas of service include the following : - Advise and Compliance relating to International Tax Issues; Advise relating to UAE Corporate Tax Issues; Advise and Compliance relating to UAE Economic Substance Regulations; Advise and Compliance relating to Indian Income Tax Issues; Other connected matters from a Regulatory perspective.

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