Budget 2022 personal taxation proposals and how they will impact taxpayers

The Budget has brought tax relief for those who invest in capital assets other than equity funds and listed stocks. The surcharge on the tax payable on long-term gains from these capital assets-property, unlisted shares, artifacts-would be capped at 15%. The Budget also gives taxpayers the chance to correct mistakes made in reporting income while filing returns even as it clamps down on getting away with undisclosed income.

The surcharge on long-term capital gains tax from equity funds and listed stocks is already capped at 15%. But for gains from other assets, the surcharge is based on the income slab of the taxpayer. It is 25% for incomes from Rs 2 crore to Rs 5 crore and 37% for incomes above Rs 5 crore. This pushed up the effective tax on the capital gains from these assets to as much as 25-27.4% compared to 11.5% payable on gains from equity funds and stocks.

“NRI investors and overseas funds are likely to benefit from the cap on the surcharge rate,” says Amit Maheshwari, Tax Partner, AKM Global. Bringing down the surcharge on capital gains from unlisted shares has also been a long-standing demand of startups. It will benefit those holding Esops of unlisted companies.

“Rationalisation of surcharge rate on long-term capital gains will encourage investments in capital assets,” says Amit Singhania, Partner, Shardul Amarchand Mangaldas & Co. But the proposal will benefit only those with an income above Rs 2 crore, as the surcharge on income below that income level is already 15%.

The Budget has also sought to give opportunity to taxpayers to rectify mistakes related to misreporting of income when filing income tax return for a financial year. It has created a provision for allowing such taxpayers to file an updated return within two years from the end of the relevant assessment year. This is irrespective of whether the taxpayer has filed a return previously for the relevant assessment year, or not. The filing of the updated return will be allowed only after payment of amount equal to 25% or 50% as additional tax on the tax payable on the additional income furnished.

Currently, an individual gets time only till 31 December of the relevant assessment year to file a revised ITR. Amit Gupta, MD and Co-Founder, SAG Infotech, asserts, “The updated return filing provision is much better than the previous with the time bracket of two years at maximum to the end of the assessment year.”

At present, if the income tax department finds out that some income has been missed out by the assessee, it goes through a lengthy process of adjudication. Instead, with this proposal, there will be trust reposed in the taxpayers that will enable the assessees themselves to declare the income that they may have missed out earlier while filing their return. Sudhir Kaushik, CEO, Taxspanner, observes, “Sometimes the tax filer misses out on reporting certain income either due to ignorance or otherwise, but this gets captured in the Annual Information Statement. This triggers a notice to the taxpayer who then has to go through a lengthy process of appeal. This new provision will ease the burden on the taxpayer and gives sufficient time to get the tax return rectified without punitive action.” However, some other conditions also need to be fulfilled to be able to file updated income tax returns. According to the Memorandum to the Budget, there should be no decrease in the income tax liability or resulting in income tax refund from the updated ITR.

Further, as a deterrence against tax evasion, the Budget has provided that no set off of any loss shall be allowed against undisclosed income detected during search and survey operations. This is in response to cases where individuals or entities have set off brought forward losses against undisclosed income detected in search operations. With this provision, such individuals will no longer find any space to wiggle out of tax liability. “Some entities were found to be using business losses as a shelter to argue against money being forfeited. This provision puts an end to this argument,” points out Kaushik.

Other tax proposals

Parity for state govt employees

State government employees will be able to claim a tax benefi t of 14% on NPS contributions from the fi nancial year 2022-23, bringing them on par with central government employees. Until now, the tax benefit was capped at 10% for state government and private sector employees.

Higher TDS for non-filers

Taxpayers who haven’t fi led returns for the previous assessment year will be subjected to higher TDS. 10-30% TDS is applicable on interest income from deposits, dividends, sale of property, NRI payments and rental income. It will be higher if returns have not been fi led.

Tax exemption for NRIs

Income of NRIs from offshore derivative instruments, royalty and interest on leasing ship, and portfolio management services based out of International Financial Services Centres or GIFT city will be exempt from tax. This exemption is subject to conditions, the finance minister said.

Benefit for the disabled

For insurance policies bought by parents/guardians of disabled children, the payout can now be given to the dependant even if the parent is alive, if he is over 60 years. So the premium will qualify for deduction under Section 80DD even if the parent is alive and over 60. Earlier, the annuity/lump sum was paid only on the death of policyholder. “Another point, which needs further clarity, is that the payout will no longer be taxable,” says Sanjay Datta, Chief, Underwriting, ICICI Lombard General Insurance.

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