Highlights of Union Budget 2022

1.0 DIRECT TAXES

1.1 Effective Tax Rates

• No change in tax rates in respect of income of all categories of assessee.
• No change in MAT and AMT rate for companies and other entities except in case of Co-operative Societies where the AMT rate is reduced from 18.5% to 15%.
• No change in Surcharge and HEC except the following:
• Surcharge on any long term capital gains arising to Individual/ HUF/AOP/BOI under section 112 of the IT Act, restricted to 15%.
• Surcharge in case of AOP, consisting of only companies as its members, restricted to 15%.
• Surcharge in case of Co-operative society (except resident cooperative society opting for section 115BAD), reduced from 12% to 7% where income exceeds Rs. 1 crore but does not exceed Rs. 10 crore.

1.2 Tax Incentives and Proposals for Business

• Section 115BAB of the IT Act is proposed to be amended to extend the date of commencement of manufacturing or production of an article or thing or generation of electricity from 31 March 2023 to 31 March 2024.
• It is proposed to further extend the period of incorporation of the eligible start-ups for claiming the tax holiday under section 80-IAC of the IT Act by 1 more year i.e., before 1 April 2023.
• It is proposed to amend section 115BBD of the IT Act to provide that the concessional regime for taxation of foreign dividends @15% shall not apply from AY 2023-24 onwards.
• It is proposed to include an explanation in the IT Act that for the purposes of section 40(a)(ii) of the IT Act, the term tax includes and shall be deemed to have always included any surcharge or cess, by whatever name called, on such tax. Accordingly, HEC and surcharge shall be disallowed under said section.
• It is proposed to insert clarification in section 43B that conversion of interest payable, under section 43B, into debenture or any other instrument by which liability to pay is deferred to a future date, shall not be deemed to be actual payment for the purpose of claiming deduction under the said section.
• It is proposed to insert a new explanation 3 to section 37 of IT Act to further clarify that the expression expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law under explanation 1, shall include and shall be deemed to have always included  the expenditure incurred by an assessee,
• for any purpose which is an offence under, or which is prohibited by, any law for the time being in force, in India or outside India; or
• to provide any benefit or perquisite, in whatever form, to a person, whether or not carrying on a business or exercising a profession, and acceptance of such benefit or perquisite by such person is in violation of any law or rule or regulation or guideline, as the case may be, for the time being in force, governing the conduct of such person; or
• to compound an offence under any law for the time being in force, in India or outside India.
• To clarify that proceedings in case of predecessor entity which ceases to exist pursuant to business reorganization are valid, section 170 proposed to be amended to provide that such proceedings pending or completed on the predecessor shall be deemed to have been made on the successor entity.
• In order to enable the successor entity to give effect to business reorganization, it is proposed to insert section 170A allowing the successor entity to file a modified return within 6 months from the end of the month in which the order of competent authority is issued.
• It is proposed to insert section 156A to give effect to the orders of the competent authority to modify the income-tax demand as directed by such authority.
• It is proposed to insert new section 194R to the IT Act to provide that the person responsible for providing to a resident, any benefit or perquisite, whether convertible into money or not, arising from carrying out of a business or exercising of a profession by such resident, shall before providing such benefit or perquisite, to such resident, deduct the tax @10% of the value or aggregate of value of such benefit or perquisite.

1.3 Personal Taxation

• Exemption of following amounts received for medical treatment and on account of death due to COVID-19.
• Section 17(2)  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 subject to such conditions, shall not be forming part of perquisite.
• Section 56(2)(x) (a) Any sum of money received by an individual, from any person, in respect of any expenditure actually incurred by him on his medical treatment or treatment of any member of his family, in respect of any illness related to COVID-19 subject to such conditions, shall not be the income of such person (b) any sum of money received by a member of the family of a deceased person, from the employer of the deceased person (without limit), or from any other person or persons to the extent that such sum or aggregate of such sums does not exceed Rs. 10 lakh, where the cause of death of such person is illness relating to COVID-19 and the payment is, received within 12 months from the date of death of such person, shall not be the income of such person.
• It is proposed to allow the deduction under section 80DD of the IT Act during the lifetime, i.e., upon attaining age of 60 years or more of the individual or the member of the HUF in whose name subscription to the scheme has been made and where payment or deposit has been discontinued. Further, it is proposed that the provisions of sub-section (3) shall not apply to the amount received by the dependent, before his death, by way of annuity or lump sum by application of the condition referred to in the proposed amendment.

1.4 Non-residents

• The income of a non-resident from offshore derivative instruments, or over the counter derivatives issued by an offshore banking unit, income from royalty and interest on account of lease of ship and income received from portfolio management services in IFSC shall be exempt from tax, subject to specified conditions.

1.5 Other Proposals

• It is proposed to introduce section 139(8A) of the IT Act wherein any person, whether or not he has furnished a return, may furnish an updated return of his income or the income of any other person in respect of which he is assessable under the IT Act, within 24 months from the end of the assessment year, subject to other prescribed conditions, in prescribed form and manner containing such particulars.
• It is proposed to introduce section 115BBH which provides that any income from transfer of any virtual digital asset shall be taxed @ 30% and no deduction would be allowed for any expenditure or set-off of losses. Further, loss from transfer of such assets shall not be allowed. It is also proposed to amend Explanation to section 56(2)(x) of the IT Act to interalia, provide that for the purpose of the said clause, the expression property shall include virtual digital asset.
• In order to capture the transaction details, it is proposed to introduce section 194S under the IT Act which provides for TDS on payment made to a resident in relation to transfer of virtual digital assets @1% of such sum above a monetary threshold and certain other conditions.
• Certain provisions applicable to trusts and institutions covered under section 11 and section 12 (referred as second regime) to be made  applicable to trusts and institutions covered under section 10(23C) (referred as first regime). Further, various clarifications on taxation in respect of these charitable trusts and institutions proposed.
• It is proposed to amend the provisions of section 68 to provide that the nature and source of any sum, whether in form of loan or borrowing, or any other liability credited in the books of an assessee shall be treated as explained only if the source of funds is also explained in the hands of the creditor or entry provider.
• Section 148 proposed to be amended to clarify what constitutes information under Explanation 1 to section 148 and it proposes to include any audit objection, or any information received from a foreign jurisdiction under an agreement or directions contained in a court order, or information received under a scheme notified under section 135A, etc. Further, section 149 proposed to be amended to provide that a notice under section 148 shall be issued up to 10 years from end of the relevant assessment year where the Assessing Officer has in his possession books of account or other documents or evidence which reveal that the income chargeable to tax, represented (a) in the form of an asset or (b) expenditure in respect of a transaction or in relation to an event or occasion or (c) an entry or entries in the books of accounts.
• The requirement of higher TDS / TCS shall be applicable in case of nonfiling of tax return by the payee for preceding 1 year instead of 2 years as earlier provided. Further, deduction of tax under section 194 IA, 194 IB and 194M excluded from the operation of section 206AB of the Act.
• Provisions of section 94(8) of the IT Act relating to bonus stripping proposed to be amended to include securities as well. Further, definition of units proposed to be amended to include units of business trusts for dividend and bonus stripping.
• It is proposed to amend section 194-IA of the IT Act and to provide that in case of transfer of an immovable property (other than agricultural land), TDS to be deducted @ 1% of such sum paid or credited to the resident transferor or the stamp duty value of such property, whichever is higher.
• It is proposed to insert section 79A of IT Act to provide that, notwithstanding anything contained in the Act, no set-off of brought forward loss or unabsorbed depreciation shall be allowed against any undisclosed income unearthed during the course of search and survey proceedings.
• It is proposed that the existing provisions are replaced with section 144B to streamline the process of faceless assessment in order to address various legal and procedural problems being faced in implementation of the said section. Section 144B(9) treating the proceedings to be void on non compliance of procedure laid down under the said section, proposed  to be omitted from date of its inception.
• It is proposed that the revision of transfer pricing assessment order under section 263 shall be within the powers of the PCCIT or CCIT or PCIT or CIT who is assigned the jurisdiction of transfer pricing.
• Procedure prescribed under section 158AB for deferral of revenue appeal where identical question of law is pending before jurisdictional High Court or Supreme Court in case of any other assessment year of the assessee or in case of any other assessee.

2.0 INDIRECT TAXES

2.1 GST, Custom & Excise

2.1.1 CGST Act Amendments

• Time limit for claiming input tax credit (ITC) under section 16(4) extended to 30th November of the succeeding financial year as against the due date of September's Form GSTR 3B
• Time limit for issuing credit note under section 34(2), rectification of errors in GSTR 1 and GSTR 3B and section 52 (6) extended to 30th November of succeeding financial year as against September earlier
• Insertion of new clause Section 16(2) (ba) restricting availment of ITC as communicated to the taxpayer under section 38.
• Cancellation of registration of composition dealer if the returns not furnished for a FY beyond 3 months from the due date
• Cancellation of registration in cases other than composition dealer in case if returns are not furnished for continuous tax period as may be prescribed.
• The due date for filing GSTR 5 by Non 􀁅resident taxable person has been stated as 13th day of the following month
• Section 38 of the CGST Act is substituted for prescribing the manner, conditions and restrictions for communication of details of inward supplies and input tax credit.
• Section 41 of the CGST Act is being substituted to do away with the concept of "claim" of ITC on"provisional" basis Removal of section 42, 43 and 43A of the CGST Act. In order to do away
• with two-way communication process in return filing system
• Section 47 of the CGST Act is being amended so as to provide levy of late fees for delayed filing of TCS returns
• Section 49 is being amended to provide restriction for the amount available in electronic credit Ledger (ECL) and the maximum proportion of output tax liability which may be discharged through the ECL.
• Section 49 also allows transfer of amount available in electronic cash ledger of registered person to the electronic cash ledger of distinct person.
• Section 54 of the CGST act is being amended to provide for the situation of refund of balance in electronic cash ledger.
• Insertion of sub clause (ba) in clause (2) in section 54 by providing clarity regarding the relevant date for filing refund claim in relation to supplies made to SEZ/ SEZ (developer).
• The relevant date for claiming refund of tax paid on inward supply under section 55 has been clarified as two years from the last day of the quarter in which the said supply is received.

2.1.2 Custom Act Amendments

• Inclusion of officer of Directorate of Revenue Intelligence, Audit and Preventive formation in the class of officers for the purpose of section 3 (i.e. definition of officer)
• Section 14 is being amended to include provisions for rules enabling the Board to specify the additional obligations of the importer in respect of a class of imported goods whose value is not being declared correctly, the criteria of selection of such goods, and the checks in respect of such goods.
• Applicant can withdraw his application in respect of advance ruling at any time before pronouncement of advance ruling. Also, Advance ruling shall remain valid for three years or till there is change in law or facts, whichever is earlier.
• Publishing of import and export data submitted by importer to Customs is declared an offence unless required under law.
• Procedural changes are made in Customs (Import of goods at concessional rate of duty) Rules, 2017.

2.1.3 Changes in Customs Duty Rate and Exemption

• BCD rate on imitation jewellery has been amended to 20% or Rs 400/kg whichever is higher.
• Decrease in BCD on cut and polished diamond and cut and polished natural stones from 7.5% to 5%
• Increase in BCD on electrical and electronic items
• Increase in BCD rate on Solar Cells (other than those exclusively used with ITA-1 items) and Solar Modules (other than those exclusively used with ITA-1 items)
• Decrease in BCD rate for textile products
• Decrease in BCD rate for ferrous waste and scrap
• Effective BCD rate on Project Imports would continue to be 􀀼Nil / 2.5% / 5% (as applicable) till 30 September 2023 for the project imports registered till 30 September 2022. For other project imports, 7.5% BCD rate will be applicable from 01 October 2022.
• All project imports will attract 7.5% BCD rate after 30 September 2023
• Certain Cesses (AIDC, Health Cess and RIC) are being exempted for specified notifications
• Nil BCD on scrap of iron and steel is being extended up to 31 March 2023
• The Customs duty rate structure on capital goods and project imports has been comprehensively reviewed and exemption on capital goods/ project imports are being phased out in a gradual manner. However, certain exemptions on capital goods would continue
• A new entry at S. No. 166A would be inserted w.e.f. 1 April 2024 providing a concessional rate of 5% for bulk drugs falling under Chapters 28, 29 or 30 used in the manufacture of Poliomyelitis Vaccine or Monocomponent insulins subject to importer following IGCR Rules 2017
• There have been proposals involving changes in effective basic custom duty rates in respect of phased manufacturing program (PMP) with respect to specific electronic goods.

2.1.4 Changes in Anti-Dumping Duty (ADD)

ADD is permanently revoked on import of :

1) Straight length bars, rods of alloy steel from China.
2) High Speed Steel of Non-Cobalt Grade from Brazil, China and Germany
3) Flat rolled product of steel, plated or coated with alloy of Aluminium or Zinc from China, Vietnam and Korea RP

2.1.5 Changes in Countervailing Duty (CVD)

CVD is permanently revoked on imports of Certain Hot Rolled and Cold Rolled Stainless Steel Flat Products from China.

2.1.6 Changes in Excise Duty

Two new tariff items, namely, 2710 12 43 and 2710 12 44, falling under Chapter 27, have been inserted in the Fourth Schedule to the Central Excise Act, 1944 with rate of duty as 14% plus Rs 15 per litre.

2.1.7 Changes in National Calamity Contingent Duty (NCCD)

The Seventh Schedule of the Finance Act, 2001, is being amended by substituting Central Excise tariff item 2709 20 00 with 2709 00 10 [Petroleum Crude] with rate of duty as Rs 50 per tonne.

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