Taxation and Finance

With India’s economic growth estimated at 9.2% this year, the Hon’ble Finance Minister has sought to lay the foundation and give a blueprint to steer the economy over the Amrit Kaal for India for the next 25 years –India at 75 to India at 100.  The Budget has laid a blueprint for the Amrit Kaal, which is futuristic and inclusive and includes big public investment for modern infrastructure. The Government has also laid emphasis on: (1) PM GatiShakti (2) Inclusive Development (3) Productivity Enhancement & Investment, Sunrise Opportunities, Energy Transition, and Climate Action (4) Financing of Investments.

One of the key sectors that is under everyone’s radar are the new reforms regarding Taxation and Finance. The last few budgets have made transformative changes in taxation reforms and this budget did not break that pattern. Here are some of these new reforms and the impact that they will have.

The Government of India has been supporting the growth of startups for years now, they used this budget to push this growth even further. Tax holidays for eligible startups was extended to 31st March 2023 [Section 80-IAC]. Also reduced tax rate of 15% for manufacturing companies extended to companies having date of commencement of manufacturing or production till March 31, 2024 [Section 115BAB]. This will help startups and manufacturing companies that faced delay in setting up their production process to avail this government incentive. 

10% TDS was introduced on any benefit or perquisite provided to a resident arising from such person’s business or profession [Section 194R].

Surcharge on long term capital gains on sale of unlisted securities capped to 15%. This reduces the tax rate on Long Term Capital Gains tax on sale of unlisted securities from 28% to 23%.

Taxpayers can file updated income-tax return to disclose additional income within 2 years from end of the assessment year subject to payment of 25% and 50% additional tax for year 1 and 2 respectively [section 139(8A)]. Incase the taxpayer has missed a filling or filled lower income, this gives them to rectify their mistake and file a revised return.

The biggest reform change in the budget this year was the taxation of ‘virtual digital assets. Tax regime introduced for ‘virtual digital assets’ [Section 115BBH]:

  • Tax rate of 30% on transfer

–No deduction other than the cost of acquisition shall be allowed

–Loss from transfer of such assets not allowed against other income

  • TDS at the rate of 1% applicable on the transfer of virtual digital assets [Section 194S]
  • Gift of such assets to be taxable in the hands of the recipient.

By bringing the digital assets into the tax regime the government of India has recognised the importance of Cryptocurrency. The inclusion of tax framework would help to regulate the booming cryptocurrency and NFT wave in India. Moreover, the Government has also proposed to introduce the digital rupee that lends credence to the hypothesis that crypto will never be recognized as legal tender in India. Guidelines will be issued in due course by the government.

Conclusion:

The 2022 Budget supports Governments to focus on the startup sector by outlining several policy-related proposals that will provide sustainable growth and support for the country’s startup ecosystem.

The proposal for a tax on ‘digital assets’ may be seen as a positive step in creating regulatory oversight in the sector. Another positive outcome is the proposal to reduce and cap the surcharge on LTCG on unlisted shares. The government has setup an expert committee tasked with scaling up Private Equity and Venture Capital which will create a stronger interest from HNIs and FIIs to invest in the investment class.

As a whole, the budget lays out a solid roadmap to realize its long-term vision for an Amrit Kaal.

Author

Udit Bagdi

Editor, TJEF

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