Personal Taxes

Finances 2022: Key personal tax modifications FM Sitharaman introduced

Union Finance Minister Nirmala Sitharaman presented the Budget 2022 on February 1 stating that this budget seeks to lay the foundation and give a blueprint to steer the economy for the next 25 years.

While presenting the direct tax proposals, she thanked all taxpayers of the country who have contributed immensely and strengthened the hands of the government in helping their fellow citizens in this hour of need.

So read: No change in personal income tax rates in Budget 2022

Some of the key changes which may impact individual taxpayers are:

1. Filing of updated tax returns – In order to provide an opportunity to some taxpayers who may realize that they have committed omissions or mistakes in correctly estimating their income for tax payment, a new section has been introduced to enable such taxpayers to file an updated tax return. This opportunity shall be available for a period of three years from the end of the relevant financial year, subject to the fulfillment of certain conditions. This will also aid in minimizing litigation by the Income Tax department.

2. Taxation of Virtual Digital Assets (‘VDA’) – With the advent of phenomenal increase in transactions in digital assets, it has been proposed to tax income from VDA at a flat rate of 30% without providing for any other deduction, except the cost of acquisition of such assets. Any loss from the transfer of VDA cannot be set off against any other income. Also, the gift of VDA is proposed to be taxed in the hands of the recipient. Further, in order to capture the transaction details, TDS provisions on the transfer of such assets have also been proposed.

3. Tax Relief to differently-abled person –
As per the current tax laws, the deduction is available to the parent/guardian of the differently abled person for an insurance scheme taken for such person. However, the deduction is available only if the lumpsum payment or annuity payment is available on the death of the parent/guardian. The budget has proposed to extend the deduction for such scheme even when the payment of lumpsum or annuity is provided to the differently-abled person during the lifetime of the parent/ guardian (after they attain the age of 60).

So read: How the Finance Bill 2022 will impact personal taxation

4. Rationalization of surcharge on long-term capital gains –
As per the current tax laws, there is a difference in the rate of surcharge arising on LTCG. The LTCG on listed equity shares, units etc. are liable to a maximum surcharge of 15%, while the other long term capital gains are subjected to a graded surcharge which goes up to 37%. In order to address this anomaly, it has been proposed that the surcharge on all LTCG will be capped at 15%.

5. TDS provisions for benefits/perquisites paid to businesses/professionals –
It has been proposed that any person responsible for providing any benefit/perquisite to a resident, arising from business/profession carried out by such resident, shall deduct tax at the rate of 10% on the value of such benefit/perquisite, if the value of such benefit exceeds Rs 20,000. These provisions will apply in case of an individual or Hindu Undivided Family (‘HUF’) only if the specified sales, receipts, turnover thresholds are met.

While there has neither been any revision in the tax rates nor any new deductions/exemptions have been proposed, the budget proposals seek to provide clarity in many aspects, such as taxation of digital assets, rationalization of surcharge on long-term capital gains which were long awaited.

(The author is Tax Partner, EY India.)

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