Union Budget 2022 – introduced as a blue-print to steer the Indian economy and foster growth – has proposed significant proposals to give a holistic fillip to infrastructure development, capital expenditure inducing measures, and a clear focus towards digital economy & fintech.
Amid the pandemic, the government had to undertake a balancing act of containing the fiscal deficit, generating sufficient revenues for meeting its social obligations and giving a push to economic development, and promoting a stable and predictable tax regime. All significant aspects of the economy have been kept in view by the FM while presenting her budget for 2022-23.
From an income-tax perspective also, the Finance Bill, 2022 (“Finance Bill”) has proposed important changes to the Income-tax Act, 1961 (“IT Act”). Set out below are some such proposals:
- Unexplained cash credit | Source of source: The Finance Bill has proposed an amendment to section 68 of the IT Act (section 68 deals with taxability of “cash credits”, ie amounts received by a taxpayer for which satisfactory explanation cannot be offered by the taxpayer) to increase the burden on taxpayers from not only providing a satisfactory explanation about its source (ie the person from whom it received money), but also providing a satisfactory explanation about the “source of such source”. This proposal will be applicable for FY 2022-23 and onwards and is applicable to moneys received by way of loan or borrowing. Given that additions made under section 68 of the IT Act are taxable at a higher rate of tax (ie at the rate of 60 per cent ), it is an important proposal as it casts an additional onus on the taxpayer to substantiate the genuineness of its borrowings.
- Cryptocurrencies | Virtual Digital Assets (“VDAs”): One important highlight of the Finance Bill is the proposal to introduce a separate regime for taxation of VDAs, in terms of which: (i) gains arising from the transfer of VDAs will be taxable at a flat rate of 30 per cent (plus applicable surcharge, cess) with no set-off of any loss or cost, except the cost of acquisition of such VDA, (ii) receipt of VDAs for nil or inadequate consideration will be taxable as ordinary income in the hands of the recipient, and (iii) payments made in relation to transfer of VDAs will be subject to TDS of 1 per cent of such consideration above specified monetary thresholds. What must be noted is that introduction of a separate regime for VDA should not be extrapolated to interpret that the government has expressed any view about the legal aspects involved in relation to cryptocurrencies.
- Introduction of “Updated Tax Return” concept: The government is introducing a new concept of “Updated Return” to provide extra time (over and above the period that is already available under the IT Act for belated return / revised return) to taxpayers to furnish an “Updated Return” at any time within 3 years from the end of the relevant financial year (ie 2 years from the end of relevant assessment year). To take benefit of this new concept, an amount equal to 25 per cent or 50 per cent (depending upon the timing of filing of “Updated Return”) as additional tax on the tax and interest due on the additional income would be required to be paid; and the Updated Return will need to be accompanied by the proof of payment of such additional tax. Certain scenarios (ie search / survey cases, or cases where information is available to the tax officer under laws like anti-money laundering law, Black Money Act, etc) are not eligible for this facility. The government seeks to make use of the huge data with the income-tax department to result in additional revenue realization and facilitate ease of compliance to the taxpayer in a litigation free environment.
- Measure to reduce departmental appeals in income-tax matters: In continuation of the government’s litigation management efforts (ie to become a non-adversarial tax regime) the Finance Bill has proposed that where a “question of law” is pending before the Supreme Court or before the jurisdictional High Court (“Pending QOL”), then, the income-tax department will not be able to file an appeal in the case of the same taxpayer or some other taxpayer until the Pending QOL is decided by the Supreme Court / jurisdictional High Court. This is, of course, subject to the taxpayer accepting that the Pending QOL is identical to the “question of law” arising in its case. To implement this proposal, a collegium comprising 2 senior level officers of the income-tax department will be constituted. This is a welcome move and will go a long way in ensuring that the already over-burdened judiciary is not piled with more avoidable litigation, besides saving time and cost for taxpayers.
All in all, Union Budget 2022 demonstrates the government’s clear intent to touch every aspect of the economy and to leave no stone unturned – be it digital economy push be it an infrastructure boost or be it the energy sector. While some demand inducing measures like reliefs in terms of personal taxation would have added more cheer to the general population, what needs to be kept in mind is the tight fiscal situation in which this massive budget exercise was undertaken. What also needs to be applauded is the fact that the economy is gradually healing from the wounds of the pandemic. Now, various stakeholder discussions will take place in the next few weeks, and one will have to see what transpires into the Finance Act, 2022.
(Views are personal. Sanghvi is partner, Khaitan & Co, and Bajaj is principal associate, Khaitan & Co.)