Perhaps the most discussed tax proposal of Budget 2022 was the new rules around cryptocurrencies.
With the recent spike in investments in cryptocurrencies, the government had for long been looking at ways to tax such transactions. Also as the trading platforms are based out of India, there was no plausible means of taxing such incomes except to tax the recipient of such incomes directly along with maintaining investor sentiments.
But beyond this, there are a number of changes on the tax front. For the lay reader, we take a look at them and categorise them as the good, the bad and the ugly.
The Good
1) Surcharge for individuals/HUF on any long-term capital gains to be capped at 15%.
The distinction between listed and unlisted shares has been removed along with bringing all the long-term assets within this purview. The change is a welcome one as it would increase the disposable income in the hands of taxpayers by a sizeable amount.
2) Capping of the Surcharge rates for association of persons (AOP)’s consisting of only corporate members to 15% from 37% earlier.
This is also a welcome move as it is expected to increase the return on investments, particularly in infrastructure projects which are generally carried out through the structure of an AOP.
3) Additional time provided to file corrected returns – 3 years from the end of the fiscal year.
This change is expected to provide an additional opportunity/window to the taxpayers to correct any errors/omissions and accordingly, reduce the risk of notices from tax authorities.
4) Payments received from employer (by the employee or his survivors), or from any other person, up to an aggregate limit of Rs 10 lakh for treatment of COVID-19 has been exempted from tax.
This is expected to give a significant breather to the taxpayers who have already gone through agony and pain, especially during the second wave of COVID-19.
5) Benefit of deduction to start-ups of 100% profits extended to start-ups incorporated by March 31, 2023 from March 31, 2022 earlier. This amendment brings relief to many start-ups who could not commence owing to COVID-19.
6) In order to reduce litigation, a new scheme for management of litigation has been proposed wherein the superior authorities could instruct the tax officers to keep on hold the filing of appeals before the tribunal and the high court on a similar question of law pending before the high court or Supreme Court, respectively, in case of any taxpayer. This would significantly reduce the filing of frivolous and repetitive appeals by the tax officers and would significantly reduce the financial stress and burden both on the taxpayers and the government.
7) Provisions for withdrawal of exemption registrations of a charitable or religious trust have been streamlined from the previous provisions which were ambiguous and vague. This change is expected to give better clarity to charitable trusts/institutions so as to structure their activities accordingly.
The Bad
1) The corrected return as stated above could only be filed with payment of additional taxes which are 25% or 50% for returns filed within 2 years or 3 years from the end of the fiscal year, respectively. Though the change gives an opportunity to the taxpayer to correct errors/omissions, on the flip side it is a revenue enhancement measure. It should have also allowed the taxpayers to claim additional allowances or credit for taxes which may have been discovered subsequently.
2) Health and education cess to not be allowed as business expense. The amendment is at odds and to dilute the effect of the recent judgments pronounced by the Bombay and Rajasthan high courts.
3) Buyers of immovable properties are required to withhold taxes on the transaction amount or value adopted by the stamp duty authorities for the purpose of payment of stamp duty, whichever is higher. The change brings the withholding tax provisions in line with the taxing provisions, however, casts an additional responsibility on the buyer of immovable property.
4) Withholding tax at 10% on the benefits or perquisite provided in cash or in kind to a person carrying on business or profession. This change also brings the withholding tax provisions in line with the taxing provisions but casts an additional responsibility on the payer.
5) Slab rates for individuals/HUF were left unchanged and also no change has been proposed to the limits of deductible interest expense on self-occupied house property, which currently stands at Rs 2 lakh and the limits under Section 80C, which currently stands at Rs 1.5 lakh. A change in this regard would have been a welcome one, especially at a time when many people have lost their jobs or are working with reduced remuneration and medical expenditure has sharply increased because of COVID-19.
Representative image of the Delhi income tax department. Photo: PTI
The Ugly
1) Gains from transfers of Digital Virtual Assets (like cryptocurrencies) to be taxed at a flat rate of 30% without any set off of any costs, allowance and loss. It is also not clear if loss from the sale of Digital Virtual Assets will be allowed to be set off against the gain on sale of Digital Virtual Assets. The change seems to equate gains on Digital Virtual Assets to gambling income, and overlook the fact that it should have been taxed as normal income under the head ‘Income from Capital Gains’ or ‘Income from Business’. Moreover, the world is moving towards cryptocurrencies and the proposal of the finance minister seem to discourage investing in cryptocurrencies.
2) Loss arising from transfer of Digital Virtual Assets to not be allowed as set off from any other income under any other source. The change seems to disincentivise investments in Digital Virtual Assets.
3) Withholding of tax at 1% by the buyer on the purchase of Digital Virtual Assets. The change proposed seems to overlook a practical difficulty, especially wherein the trading is done through a digital platform or where the buyers are outside India.
4) No set off of any loss or unabsorbed depreciation against any undisclosed income found during the course of search and seizure or survey operations on any taxpayer. The change seems to be at odds with the government’s policy of ‘Ease of Doing Business in India’ and should not be passed or passed with corrective changes.
5) Dividends from foreign companies to Indian shareholders holding not less than 26% shares to be taxed at normal rates applicable to such shareholders and not at the reduced rate of 15%. The change is expected to reduce the net return of Indian investors as a significant sum may be wiped off in huge tax costs.
Vikrant Suri is the co-founder and partner, Tax & Regulatory Services at Coinmen Consultants LLP. Shrey Aggarwal is a senior manager, Tax & Regulatory Services at Coinmen Consultants LLP.