Budget 2022-23 Direct Tax Highlights

Increase in time limit for updating return

Added a new sub section 8A in section 139 that will allow taxpayers to file ‘updated’ returns to correct omissions and errors in their original tax returns, within two years from the end of the relevant assessment year.

This proposal will allow taxpayers to pay additional taxes due to disclosure of new income, applicable surcharge and interest and additional payment of 25% or 50% of additional tax and interest payable as a penalty (25% if updated return filed in 1st year after assessment year and 50% if updated return filed in 2nd year) to avoid lengthy processes which are involved in assessing and taxing income that has not been disclosed or assessed. In calculating the additional tax payable credit of TDS/TCS, section 90/90A/91 which was not claimed in earlier return shall be allowed.

eg.ITR filling for FY 2021-22 (AY 2022-23)

Due date for Filling Return - 31-7-2022

Time Allowed u/s 139(4) - 31-03-2023

Update return can be filed with additional 25% tax - 31-3-2024

Update return can be filed with payment of additional 50% tax - 31-3-2025

Change in levy of surcharge on capital gain

Capital gain in cash of sale of equity shares /mutual fund on change in surcharge as under:

Particulars Income Slab Existing Surcharge Proposed Surcharge

Income of Dividend SHort term and Long 50Lac - 1 crore 10% 10%

Capital Gain u/s 111A or 112A 1CR - 2 Crore 15% 15%

2 cr -- 5 crore 25% 15%

above 5 crore 37% 15%

Clarification regarding treatment of cess and surcharge

Sub-clause (ii) of clause (a) of section 40 of the Act provides income tax paid shall not be deducted in computing the income chargeable under the head “Profits and gains of business or profession”. It was unclear if this sub clause included cess and surcharge or not. Explanation is added retrospectively to disallow cess or surcharge on the same lines as income tax.

Clarification in respect of disallowance under section 14A in absence of any exempt income during an assessment year

Section 14A of the Act provides that no deduction shall be allowed in respect of expenditure incurred by the assessee for earning exempt income. It was a matter of dispute if this disallowance was applicable when there is no exempt income during the year. An explanation is added to the effect that even if no exempt income is accrued/received during the year, disallowance under section 14A shall be applicable on expense incurred for exempt income.

Clarification regarding deduction on payment of interest only on actual payment

Section 43B provides that a deduction of any sum, being interest payable on loan or borrowing from specified financial institution/NBFC/scheduled bank or a co-operative bank shall be allowed if such interest has been actually paid and any interest referred to in these clauses which has been converted into a loan or borrowing or advance shall not be deemed to have been actually paid. However, conversion of interest payable to debenture or any instrument was not covered under this act. So explanation is added to that conversion of interest payable, into debenture or any other instrument by which liability to pay is deferred to a future date, shall also not be deemed to have been actually paid.

Extension of the last date for commencement of manufacturing or production, under section 115BAB, from 31.03.2023 to 31.03.2024

Section 115BAB of the Income-tax Act provides for an option of concessional rate of taxation @ 15% for new domestic manufacturing companies. New domestic manufacturing company is required to be set up and registered on or after 01.10.2019, and is required to commence manufacturing or production of an article or thing on or before 31st March, 2023. Section 115BAB is amended to extend the date of commencement of manufacturing or production of an article or thing, from 31st March, 2023 to 31st March, 2024.

Extension of date of incorporation for eligible start up for exemption

The existing provisions of the section 80-IAC provides for deduction of an amount equal to one hundred percent of the profits and gains derived from an eligible business by an eligible start-up for three consecutive assessment years out of ten years, beginning from the year of incorporation, at the option of the assesses subject to certain conditions. Earlier the limitation on date of incorporation was 31st March 2022. Provision of section 80-IAC is amended to extend the period of incorporation of eligible start-ups to 31st March, 2023.

Rationalization of provisions of the Act to promote the growth of co-operative Societies

(MAT Tax rate is change w.e.f. 01-04-2023)

Section 115JC of the Act, provides for the alternate minimum tax (AMT) payable by co-operative societies, which is at the rate of 18.5%. Section 115JC is amended to reduce the AMT rate at which co-operative societies are liable to pay income-tax to 15% to bring it in line with MAT.

NPS contribution deduction

Deduction on NPS contribution was brought to parity at 14% for both central and state government employees, from the 10% rate for state government employees earlier u/s 80CCD.

Tax relief for persons with disability

Tax relief provided for persons with disability will be allowed annuity/lump sum payments if the guardian is above the age of 60 years under section 80DD. Earlier it was allowed only if the guardian has passed away.

Exemption of amount received for medical treatment and on account of death due to COVID-19

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, as may be notified by the Central Government, shall not be forming part of “perquisite” under section 17.

• Additionally, any sum of money received by an individual, from any person, for any expenditure actually incurred by him on his medical treatment or treatment of any member of his family, for any illness related to COVID-19 is not taxable for the receipient.

• and any sum of money received by a member of the family of a deceased person, from the employer of the deceased person (without limit) is exempt in the hands of receipient

• or from any other person or persons to the extent that such sum or aggregate of such sums does not exceed ten lakh rupees, where the cause of death of such person is illness relating to COVID-19 and the payment is, received within twelve months from the date of death (w.e.f 01-04-2020) of such person is exempt.

Rationalization of provisions of section 206AB and 206CCA to widen and deepen tax-base

“Specified person” will now mean as a person who has not filed its return of income for the assessment year relevant to the previous year immediately preceding the financial year, and the amount of TDS & TCS is Rs. 50,000 or more in the said previous year in place of earlier requirement of 2 years. It has now been made 1 year only.

Tax on proceeds from cryptocurrency and other digital asset sales

• Proceeds from sale of cryptocurrencies and other digital assets will attract a tax of 30%, with no deductions allowed other than the cost of acquisition. Loss made on sale is not allowed to be set off against any other Income.

• Additionally, payments made to transfer these digital assets will also attract a TDS of 1% under section 194S.

Dividend Received from foreign company

Concessional rate of taxation (Existing 15%) has been withdraw from April 1 ,2022 from the dividend income received from a foreign company.

Provision of set off of losses agaisnt undisclosed income is search cases:

No set off of any loss, whether brought forward or otherwise or unabosrbed depreciation will be allowed sec 32(2) against the undisclosed income offered in search cases.

Cash Credit U/s 68:

The nature and source of any sum ,whether in form of loan or borrowing or any other liability credited in books of an assesseeshall be treated as explained only if the source of fund is also explained in the hands of creditors.

Time limit for reopening of assessment

The time limit for reopening assessment of cases has been brought down to three years from six years earlier. In serious tax evasion cases, while the time limit has been retained at 10 years, there needs to be evidence of concealment of income of ₹50 lakh or more. There was no such limit earlier.

Authored by: CA Niket Modi