Budget 2022 is clearly an attempt to continue India’s growth story through various initiatives, grants and aids, programmes and policies leading to the Amrit Kaal: the 25-year-long lead-up to India@100. Did the Finance Minister deliver on the expectations of the individual taxpayer?
Below are the key major proposals impacting individuals
Relief for COVID-19 medical expenditure and ex-gratia:
In line with previously issued press statement on tax treatment for amount received to meet medical expenditure on account of covid-19 and any ex-gratia received by family members on death of the individual due to covid-19, the Budget proposes to introduce an exemption for this amount retrospectively from the tax year 2019-20. While there is no ceiling for ex-gratia from the employer or assistance received from any person for medical treatment, INR 10,00,000 is the maximum exemption for financial assistance received from any person other than employer by the family members of the deceased individual. A condition is also placed that the ex-gratia must be received by the family members within 12 months from the date of death of the individual to qualify for the exemption while other conditions are to be notified.
Rationalisation for deduction of insurance premium on account of disabled dependents:
Presently, if the parent or guardian makes any payment under an insurance scheme on behalf of the differently abled person, the premium can be claimed as deduction only if the scheme permits the payment of annuity or lumpsum amount for the benefit of dependent after the death of the parent/ guardian. There would be genuine requirement for such dependents to receive this money during the life- time of the contributor. This Budget has considered this hardship and has extended the deduction even if such sum is paid during the life-time of the subscriber on attaining the age of 60 years, provided the payment to the scheme has been discontinued.
Taxation of Virtual Digital Assets (VDA):
While crypto currency is not legal tender in India and the RBI is expected to introduce a central digital currency in FY22-23, there has been a phenomenal increase in transactions in VDA. With lack of clarity on whether the income is to be taxed and if so, how, there was uncertainty and fear. This Budget brings certainty with proposals for taxation on income from transfer of VDA at 30%. Apart from cost of acquisition, no other deduction can be claimed. Further any loss from such transfer cannot be set off against any other income or carried forward. This is applicable irrespective of period of holding. These are proposed to be applicable from 1 April 2022.
Further, with a view to capture all transactions, TDS is a proposed at 1% on such transfer beyond a prescribed threshold. Payment by a specified person, (an individual or HUF not subject to tax audit) to a resident with the limit capped at INR 50,000. In other cases, the limit is INR 10,000. Guidelines are expected to implement TDS provisions. This is proposed to be applicable from 1 July 2022.
Trust-based governance -Updated return:
Moving to the era of trust-based governance, the finance minister proposes for voluntary filing of updated return within three years from the relevant financial year. Under the existing provisions, a tax return can be filed belatedly or the return can be revised within nine months from the end of the financial year. This causes genuine hardship in cases where overseas income or tax information is not available due to difference in tax years and tax filing timelines. However, this Budget proposal of updated return comes with hefty additional tax payment of 25% and 50% and certain frills are also attached to it.
While it is acknowledged in the Memorandum explaining the provisions of the Finance Bill that the period allowed for belated/revised returns is not sufficient, updated return cannot be filed if this would result in refund, claim of loss or decrease in tax liability. This causes proposal does not help in reducing genuine hardship where income has been reported in excess, or a credit for overseas tax or exemption has not been claimed. This could be a case where an overseas tax return would not have been filed within the due dates for filing revised / belated tax returns in India.
Parity among Government sector employees in NPS:
Much called for change is to enhance the deduction applicable for employer contribution to NPS at par with Central Government employees. Presently these employees can claim deduction up to 14% of salary while others are eligible for 10%. This Budget proposes to bring parity between the employees of Central and state governments. Private sector employees continue with the deduction of 10%; while in previous Budgets the intention was to move the nation from a pension-less society to a pensioned society, the phase of this movement is a bit slow. Unless the private sector is included for enhanced deduction, there may not be any boost up to subscribe to NPS.
Surcharge on capital gains:
Presently, long-term capital gains (other than on listed shared and units of equity mutual funds) attract surcharge at the graded rates based on the total income including capital gains. The Finance Bill proposes to cap the surcharge on capital gains at 15% for all long-term assets. This would result in reduction of tax on long-term capital gain on sale of property, unlisted and overseas shares, debt-related instruments as well as debt mutual funds etc.
Other expectations for instance, change in slab rates, enhancements of standard deduction, exemption for work from home-related allowance did not find place in the Budget proposals. One would hope that with economic growth through other Budget proposals, individuals will indirectly be benefitted and optimism would prevail.
(Tapati Ghose is partner, Deloitte India and Kavitha Jagadeesan is senior manager, Deloitte Haskins and Sells LLP. Views expressed in the article are personal.)
