The Minister of Finance today presented the Union Budget (Budget) for financial year (FY) 2022-231 in the Lok Sabha (the lower house of India's Parliament).  This Budget seeks to lay the foundation for and give a blueprint to steer the economy over the next 25 years – from India at 75 (years from its independence) to India at 100 (years from its independence). Key proposals in the Budget are as follows:

Policy

  • Digital Rupee to be rolled out by the Reserve Bank of India in FY 2022-23 via Blockchain Technology.
  • Battery swapping policy will be formulated to strengthen EV ecosystem.
  • Infrastructure status to Data Centres and Energy Storage Systems including dense charging infrastructure and grid-scale battery systems.
  • Sunrise Sectors identified are artificial intelligence, geospatial systems and drones, semiconductor technology and its eco-system, space economy, genomics and pharmaceuticals, green energy, and clean mobility system.
  • New accelerated corporate exit mechanism will be introduced. A Centre for Processing Accelerated Corporate Exit (C-PACE) will be established to facilitate and speed up the voluntary winding-up of companies from the currently required two years to less than six months.

Income-tax

  • Income from transfer of Virtual Digital Assets (i.e. cryptocurrencies) to be taxable at the rate of 30% at the time of sale of the virtual digital assets in question. No deduction or loss set-off except cost of acquisition allowed while computing taxable income. Further, the person responsible to pay consideration (in excess of a specified threshold) for transfer of virtual digital asset is obligated to withhold tax @1% and deposit the same with the Indian Government.
  • Financial assistance provided to employees for COVID related medical treatment or to the family of a deceased employee is not taxable (subject to certain thresholds and conditions).
  • Timeline provided for commencement of manufacturing or production by newly set up manufacturing companies is extended from 31 March 2023 to March 31, 2024 for availing concessionaltax rate of 15%.
  • Start-ups incorporated up to 31 March 2023 (instead of 31 March 2022) shall be eligible for profit linked tax incentives.
  • Taxpayers can file updated return of incomewithin 3 years from the end of the fiscal year to include incomes which were not reported or taxed earlier, by paying additional tax and interest (at the rate of 25% and 50% as applicable).
  • Dividend and bonus stripping provisions to be expanded to the units of business trust (i.e. real estate investment trust/infrastructure investment trust) and alternative investment funds (AIFs).
  • New provision introduced to approach the Assessing Officer for refund of withheld taxes on payments other than interest, wherein tax was not required to be withheld, under a net of tax transaction.
  • Litigation management – An Appeal by the Revenue authorities against the order of the first or second appellate authority could be deferred, subject to approval of the concerned taxpayer who is party to the dispute with the Revenue Authorities if the dispute involves: (a) question of law; and (b) an identical question of law is pending before the jurisdictional High Court or Supreme Court; where the dispute is in the favour of the concerned taxpayer (or any other person).
  • Faceless assessment streamlined with detailed process being prescribed to facilitate legal and procedural problems faced by taxpayers and Revenue in implementation of the same.
  • Extension of time until March 31, 2024 to frame policy around faceless proceedings for transfer pricing assessments, Dispute Resolution and appellate tribunal.
  • Withdrawal of concessional tax rate of 15% on overseas dividend, received by Indian companies from specified foreign companies.  
  • Surcharge and Health and Education Cess are in the nature of taxes, hence shall not be eligible as business expenditure.
  • Expenses incurred in relation to investments which could yield exempt income shall be not allowed as business expenditure, irrespective of earning non-taxable income in the concerned fiscal year.
  • The conversion of outstanding interest into debentures or any other instrument by which liability to pay is deferred, is not construed as payment for expense deduction.
  • Clarification on reduction of goodwill from block of assets, to constitute as ‘transfer', subject to conditions.
  • To facilitate strategic disinvestmentof Public Sector Companies (PSC), business losses of such PSC are eligible for carry forward, if the ultimate holding company of PSC after disinvestment continues to hold directly or indirectly 51% of voting power.
  • Introduction of withholding @10%, to be made by any person who provides any benefit or perk to any resident person, whether convertible in cash or not, arising from business or exercise of profession by such resident.
  • Incentivising operations from International Financial Services Centre (IFSC) – Extension of exemptions to Non-Residents:
  • Income from transfer of offshore derivative instruments or over-the-counter derivatives entered into with an Offshore Banking Unit of an IFSC
  • Income by way of royalty or interest on account of lease of ship, paid by unit of IFSC  
  • Income received from portfolio of securities or financial products or funds, managed or administered by any portfolio manager, on behalf of non-resident, in an account maintained with an Offshore Banking unit in any IFSC
  • The Alternate Minimum Tax (AMT) for a unit located in IFSC is reduced to 9%.  

Goods and Service Tax

  • Extended timeline for availing input tax credit in respect of any invoice or debit note pertaining to a financial year, from the due date of filing the return for the month of September of the following year to 30th November of the following financial year. 
  • Extended timeline for issuing credit note in respect of any supply made in a financial year from, the due date of filing the return for the month of September of the following year to 30th November of the following financial year.
  • Additional condition for availing input tax credit u/s 16(2) of the Central Goods and Services Act, 2017. Input tax credit can be availed only if the same is not restricted in form GSTR-2B.
  • Extended timeline foramendment/rectification of details furnished vide form GSTR 3B/ GSTR 1 from, the due date of filing the return for the month of September of the following year to 30th November of the following financial year.
  • Transfer of cash balance in the Electronic cash ledger permissible to a branch in the same state / another state subject to the conditions as may be prescribed.
  • Government empowered to prune down the proportion of input tax credit that may be utilised to discharge output tax liability.
  • The two-way communication process in filing GST returns is scrapped.
  • Introduction of interest implicationsretrospectively from 01 July 2017 on input tax credit wrongly availed and utilised.
  • In case of refund claim in respect of supplies made to SEZ developer/ SEZ, the relevant date shall be the due date for furnishing of return under section 39 in respect of such supplies.

Customs Act

  • Substantial decrease in the rate of Basic Customs Duty (BCD) for textile products.
  • Concessional/ NIL rate of BCD to continue till 30 September 2023, for project imports registered up to 30 September 2022, after which all rates to be revised to 7.5%.
  • Increase in rate of BCD for certain electrical and electronic items such as headphones, earphones, printed circuit board of smart meters, etc.
  • Protection of the import and export data submitted by importers or exporters by making the publishing of such information unless provided by the law, as an offence under Customs Act.

Footnote

1 The financial year beginning April 1, 2022 and expiring on March 31, 2023.

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