Budget News 2022

Budget News 2022  

 

1. Taxing income doesn't give private cryptos legitimacy: FM Sitharaman

 

At the customary post-Budget media interactions, Finance Minister Nirmala Sitharaman and her topmost bureaucrats touched upon a number of issues. The minister said the government taxing income from digital virtual assets did not give them legitimacy and that issue was being dealt separately in the planned cryptocurrency Bill. She also expressed confidence that the Budget targets were achievable. Excerpts:

 

On cryptocurrencies

The RBI will be issuing a digital currency. A currency can be issued only by the central bank even if it is a cryptocurrency. Anything outside that though we refer to them as currencies, they are not so. Buying and selling is happening and profits are being made, and nothing stops me from taxing them. Taxing does not confer on them legitimacy. We are not taxing a currency (digital rupee) that is yet to be issued. Everything outside this is an asset created by individuals, and if profits are made in transacting that asset, it will be taxed at 30 per cent. We are also tracking every trade in the crypto world by imposing 1 per cent tax deducted at source. We have circulated a paper, and are receiving inputs. Public stakeholders are also giving their inputs. So regulation will go through that process, and we will not wait for regulation to tax people earning profits from such assets.

 

On Budget estimates

In the February 2021 Budget, we were told we had been conservative, but we were right in our assessment. And being conservative is not being overly optimistic. We are sure we will achieve the numbers, and will probably top them.

 

On revenues

If revenues are compared to the size of GDP, excise duty cannot be linked to that because it doesn’t increase as prices go up. So if excise duty collection is removed from the revised estimates, projected growth in revenues is 14 per cent, said Revenue Secretary Tarun Bajaj. This is not conservative, but a very pragmatic number, and the government will make all attempts to achieve it.

 

Higher borrowing

The borrowing number indicates the fiscal deficit minus the small savings scheme collection. This is not artificial, but a very realistic number. It’s done using the best estimate of collections from small savings schemes, said Finance Secretary T V Somanathan. The money raised through green bonds will be part of the overall borrowing. In the coming days, these bonds will be used for specific projects. The expectation is that there are investors who are ready to invest in less carbon-consuming projects. For such a class of investors, we have to build that market which is the future, said Economic Affairs Secretary Ajay Seth. The government is in discussion with the RBI and market participants and size of issuance of such bonds will be decided soon.

 

On divestment target being slashed

Keeping a high divestment target sometimes distorts the market, said DIPAM Secretary Tuhin Kanta Pandey. Nothing stops us from achieving what we want to achieve in disinvestment. Ongoing transactions will be carried out. The LIC IPO, in all probability, will be brought this fiscal year. With revised estimates at Rs 78,000 crore, we should not conjecture on the size of the IPO as the valuation of LIC is yet to reach a conclusion. The Draft Red Herring Prospectus of LIC will be filed with Sebi within 10 days. And there have been instances of receipts being different from the estimated numbers. In our assessment we have shown the intent of the government by privatising Air India and Neelachal Ispat Nigam Ltd. I think we have been realistic in planning what we want to do and achieving what has been planned, said Sitharaman. The minister also said the Centre’s internal estimates of what it expected from LIC IPO had not been included in the revised estimates.

 

On job creation and capex

Infrastructure spending will be Rs 5.5 trillion this year. Next year, public investment will increase to Rs 7.5 trillion. Increase in capital expenditure will create a positive impact on job creation. Spending on asset creation will help in creating jobs. Besides that, government is giving incentives under the PLI scheme in 14 sectors, which will also help in creating jobs. The government recognises that for private investment to pick up, it is clear that public investment will have to be increased.

 

 

 2. Budget 2022: Relief for crypto investors as FM ushers in tax norms

 

Until now, millions of investors in digital/virtual assets (cryptocurrencies and non-fungible tokens, or NFTs) in the country worried they could be hauled up by the tax department for filing their income-tax returns vis-à-vis this asset class incorrectly. Now, finally, Finance Minister (FM) Nirmala Sitharaman has provided clarity on how they are to be taxed. The FM has announced a 30 per cent tax on any income from the transfer of virtual/digital assets.

 

Recognition at last

Taxing these assets means the government will treat them as a legitimate asset class. An earlier draft Bill had proposed up to ten years in jail for possession, mining, trading or transferring of cryptocurrency assets. Now, the uncertainty surrounding whether they could be declared illegal seems to have ended. Aditya Chopra, managing partner, Victoriam Legalis (Advocates & Solicitors), regards this as a win-win.

 

High rate of taxation

The flat 30 per cent tax rate, irrespective of the holding period, may disappoint crypto investors. Suresh Surana, founder, RSM India, said: “The taxation of virtual/digital assets at 30 per cent plus surcharge and cess will disappoint crypto assets holders. They have not been offered a lower tax rate on long-term capital gains.” Moreover, no deduction will be provided while computing such income. Only the cost of acquisition can be subtracted from this income. And losses during transfer can’t be offset against any other income. A 1 per cent tax deducted at source (TDS) on payments made for transferring digital assets will be levied above a specified monetary threshold. This is expected to enhance transparency. Says Melbin Thomas, co-founder, Sahicoin: “The government-mandated 1 per cent TDS on every trade will enable it to track crypto transactions and acquire much-needed visibility on the holders and users of crypto assets.” If these virtual/digital assets are gifted, they will be taxed in the hands of the recipient. Utsav Trivedi, partner, TAS Law, said: “The flat and high tax rate of 30 per cent may not act as a deterrent for trading and investing, but it may deter gifting.”

 

Taxation of past income

Income arising from the transfer of any virtual/digital asset from April 1 will be taxed at 30 per cent. But what about income from transfers made earlier? According to Rakesh Bhargava, director, Taxmann, “Any transfer of cryptocurrencies on or before March 31, 2022, shall be taxable as follows: Short-term capital gains and business income (due to trading) will be taxable at applicable rates and long-term capital gains at 20 per cent.”

 

Clarity needed

While the minister’s announcements have removed ambiguities on several fronts, a few questions remain. Says Pratyush Miglani, managing partner, Miglani Varma & Co-Advocates, Solicitors and Consultants: “Uncertainty continues on whether goods and services tax (GST) will be levied on such transfer or exchange.” He adds if the applicable GST rate is 18 per cent, investors could be discouraged from investing in these assets.

 

 

 3. Budget: Concessional rate dumped, foreign dividends now under tax ambit

 

Concessional rate of tax on dividends received by Indian companies from foreign subsidiaries will be done away with from April 1, a change that may hamper global expansion of Indian companies and compel some firms to move their headquarters out of India to geographies such as Singapore and Dubai. At present, dividends received by Indian companies from their foreign subsidiaries are subject to a concessional tax rate of 15 per cent under Section 115BBD of the Income Tax (I-T) Act. The provisions of this section shall not apply from assessment year 2023-24 onwards, according to the Finance Bill. “Clause 27 seeks to amend Section 115BBD of the I-T Act relating to tax on certain dividends received from foreign companies,” the Bill stated. “The said section, inter-alia, provides that in case of an Indian company whose total income includes any income by way of dividends declared, distributed or paid by a foreign company, in which the said Indian company holds 26 per cent or more in nominal value of the equity share capital, such dividend income shall be taxed at 15 per cent.” This means, dividends from foreign entities will be taxed at the applicable corporate tax rate. This will adversely impact all Indian companies, including holding companies, that have overseas subsidiaries in which they hold a stake of 26 per cent or more.

 

A host of large companies such as TCS, Infosys, Wipro, Tata Motors, Tata Steel, Dr. Reddy’s, Asian Paints, L&T and Mahindra & Mahindra from sectors as diverse as IT, pharmaceuticals, automotive, hotels and engineering goods could be hit hard by the new diktat. “Withdrawal of the concessional rate of taxation on dividend income from foreign companies will result in increased tax liability for Indian companies,” said Suresh Swamy, partner, Price Waterhouse & Co. “With the abolition of DDT regime by Finance Act 2020, dividend received by an Indian company from a domestic company became taxable at the corporate tax rate applicable to the Indian company. The amendment has been proposed to create a level-playing field, with effect from April 1, 2023,” added Amit Maheshwari, partner, AKM Global. Corporate tax rates range from 15-30 per cent (plus surcharge and cess) depending on the type of company. For instance, under Section 115BAA, domestic companies have an option to pay income tax at 22 per cent, plus surcharge and cess if they meet certain criteria. Income of new manufacturing domestic companies is taxed at 15 per cent under Section 115BAB with a surcharge of 10 per cent. According to Tejas Desai, partner at EY India, the latest amendment is a revenue mobilisation tool and will impact companies across sectors with profitable foreign operations. “It may drive up the tax cost of repatriation of the funds back into India, unless the dividends so received are further distributed to its shareholders within specified timelines (before filing the tax return),” he said. Yashesh Ashar, partner, Bhuta Shah & Co. believes the withdrawal of tax concession could impact the global expansion of Indian companies. “This is may have commercial implications on the overall structure for Indian companies or start-ups going global as well as encourage spin-off of their existing structures,” he said. Companies may choose to move their headquarters to Singapore or Dubai, which does not tax income from dividends, Ashar said. Similarly, some European countries give participation exemption, whereby dividend incomes are exempt from tax if the holding in a company exceeds a certain threshold.

 

 

4. What are the new and old income tax regimes?

 

Announcement on income tax is the most awaited part of the Union budget. And like every year, people are expecting to get some relief. They had it last year in the form of a new tax regime. Let us find out more about it

 

Under the new tax regime, the tax rates are reduced for those willing to forego tax exemptions and deductions. The new tax regime remains optional for taxpayers. This means a taxpayer has the option to either stick to the old regime or choose the new one.

 

Currently, income upto Rs 2.5 lakh is exempt from taxation under both regimes.

 

Income between Rs 2.5 lakh to Rs 5 lakh is taxed at the rate of 5 per cent under the old as well as the new tax regime.

 

Personal income from Rs 5 lakh to Rs 7.5 lakh is taxed at a rate of 20% under the old regime, while under the new regime, the tax rate stands at 10%.

 

Income between Rs 7.5 lakh to Rs 10 lakh is taxed at a rate of 20 per cent in the old regime, while in the new regime the tax rate stands at 15 per cent.

 

Under the old regime, personal income above Rs 10 lakh is taxed at a rate of 30 per cent. However, under the new regime, there are three slabs above Rs 10 lakh. Personal income between Rs 10 lakh and Rs 12.5 lakh is taxed at a rate of 20 per cent under the new regime. Income from Rs 12.5 lakh to Rs 15 lakh is taxed at 25 per cent and income above Rs 15 lakh is taxed at a rate of 30 per cent.

 

The effective tax rate is much higher due to cess and surcharges. An individual with a net taxable income of up to Rs 5 lakh is allowed to avail tax rebate of up to Rs 12,500 under Section 87A in both the old as well as the new tax system. So effectively, the tax liability of individuals with income up to Rs 5 lakh is zero under both the tax regimes.

 

 

5. What Budget 2022 holds for the individual taxpayer and the investor

 

Individual taxpayers were hopeful that the finance minister (FM) would provide some tax relief by changing the tax slabs or offering higher deduction under Section 80C, 80D, or Section 24. None of those hopes materialised. However, there was some relief for taxpayers who make a mistake in filing income-tax. Investors in cryptos will also breathe easy. Now that the FM has clarified how cryptos will be taxed, the fear that these digital assets could be banned will no longer be there. State government employees also stand to gain by enjoying higher deduction on their employer’s contribution.

 

Updated tax return

The Income-Tax Department will introduce a new updated return. This tax return will help those taxpayers who may realise they have committed omissions or mistakes in estimating their income-tax payment. They will get an opportunity to correct such errors by paying additional tax. This updated return can be filed within two years from the end of the relevant assessment year. This will help simplify the tax system, promote voluntary compliance by taxpayers, and reduce litigation.

 

Capping of LTCG

The FM announced the capping of the surcharge on the long-term capital gains (LTCG) payable on financial assets at 15 percent. This proposal will benefit taxpayers in high income tax slabs as well to investors in equity shares of start-ups. Earlier the surcharge on LTCG was capped at 15 percent in case of listed stocks and equity mutual fund. Now the same gets extended to all financial assets.

 

Clarity on taxation of cryptos

Those investing in virtual digital assets finally have clarity on their taxation. The FM has proposed that any income from transfer of any virtual digital asset shall be taxed at the rate of 30 per cent. No deduction will be available on income from this source, except the cost of acquisition. In case of loss from transfer, it can't be set off against any other income. A 1 per cent tax will be deducted at source (TDS) on payments made for the transfer of digital assets. When a digital asset is gifted, that will be taxed in the hands of the recipient.

 

NPS: State government employees brought at par with central government employees

At present, the central government contributes 14 per cent of the salary of its employees to the National Pension System (NPS). This is allowed as a deduction in computing the income of the employee. However, such deduction is allowed only to the extent of 10 per cent of the salary in case of employees of state governments. To provide equal treatment to both central and state government employees, the FM has proposed to increase the tax deduction limit from 10 per cent to 14 per cent on employer's contribution to the NPS accounts of state government employees as well. This will enhance the Social Security benefits of state government employees and bring them at par with central government employees.

 

Relief to persons with disability

The parent or guardian of a differently abled person often take an insurance scheme for such person. The present law provides for deduction to the parent or guardian only if the lump sum payment or annuity is available to the differently-abled person on the death of the subscriber, i.e.,the parent or the guardian.

 

However, there could be situations where the differently-abled dependants may need payment of annuity or lump sum amount even during the lifetime of their parents/guardians. The FM has proposed to allow the payment of annuity and lump sum amount to the differently abled dependant during the lifetime of the parents/guardians, once they attain the age of sixty years.

 

 

6. Budget 2022: 30% tax on income from cryptocurrency, virtual assets, says FM

 

Presenting the Union Budget 2022-23 in the Lok Sabha, Sitharaman said gifts received in the form of cryptocurrencies will also be taxed at the same rate. Cryptocurrencies gifts will be taxed at the receiver's end. However, losses from sale of digital assets cannot be offset against other income, she added. "I propose to provide that any income from transfer of any virtual digital asset shall be taxed at the rate of 30 per cent. No deduction in respect of any expenditure or allowance shall be allowed while computing such income, except the cost of acquisition," Sitharaman said. The tax proposals will come into effect from April 1 after the passage of the Union Budget in Parliament. Sitharaman also said Reserve Bank of India will introduce a digital currency in the next financial year using blockchain and other supporting technology. "Introduction of a central bank digital currency will give a big boost to digital economy. Digital currency will also lead to a more efficient and cheaper currency management system," Nirmala Sitharaman said on Tuesday while presenting the Budget for FY23.

 

RBI has voiced "serious concerns" around private cryptocurrencies on the grounds that these may cause financial instability. Industry estimates suggest there are 15 million to 20 million crypto investors in India, with total crypto holdings of around Rs 40,000 crore. No official data is available on the size of the Indian crypto market. Modi government has been mulling tough regulations around digital currencies in India for several months. Experts said the 30% tax levied on income arising from the sale of cryptocurrency is similar to the tax rate on winnings from lottery, game shows, puzzles etc. Digital currency and assets like NFTs (non-fungible tokens) have gained traction globally over the last couple of years. Trading in these assets has increased manifold with cryptocurrency exchanges being launched. However, India did not have a clear policy on either regulating or taxing such asset classes. NFTs are unique digital assets with verified ownership rights and the details are stored on a blockchain. Nangia Andersen India Chairman Rakesh Nangia told PTI that the government has walked the talk on a stable and predictable tax regime and transfer of virtual digital assets have been brought under the taxation ambit.

 

 

7. Taxing income doesn't give private cryptos legitimacy: FM Sitharaman

 

At the customary post-Budget media interactions, Finance Minister Nirmala Sitharaman and her topmost bureaucrats touched upon a number of issues. The minister said the government taxing income from digital virtual assets did not give them legitimacy and that issue was being dealt separately in the planned cryptocurrency Bill. She also expressed confidence that the Budget targets were achievable. Excerpts:

 

On cryptocurrencies

 

The RBI will be issuing a digital currency. A currency can be issued only by the central bank even if it is a cryptocurrency. Anything outside that though we refer to them as currencies, they are not so. Buying and selling is happening and profits are being made, and nothing stops me from taxing them. Taxing does not confer on them legitimacy.

 

We are not taxing a currency (digital rupee) that is yet to be issued. Everything outside this is an asset created by individuals, and if profits are made in transacting that asset, it will be taxed at 30 per cent. We are also tracking every trade in the crypto world by imposing 1 per cent tax deducted at source. We have circulated a paper, and are receiving inputs. Public stakeholders are also giving their inputs. So regulation will go through that process, and we will not wait for regulation to tax people earning profits from such assets.