Budget 2022: 10 Facts Individual Taxpayers Should Know

In what was mostly an infrastructure-focused budget for the 2018 financial year, Finance Minister Nirmala Sitharaman maintained the income tax rates intact yet again on Tuesday. While no changes to income tax slabs or rates are proposed, the budget does include certain recommendations that will affect individual taxpayers.

Individual taxpayers should be aware of the following ten facts:

1. Taxpayers will have an additional three years from the end of the relevant fiscal year to file an “updated” tax return if they pay “additional income tax.” With so much data at the IT department’s disposal, taxpayers will be urged to willingly comply, lowering lawsuits.
2. Atma Nirbhar Bharat gains in popularity! Long-term capital gains from all assets will be subject to a 15 percent reduced surcharge. Previously, it only applied to capital gains from listed equity shares and equity-oriented fund units. This is done to encourage investors to put money into start-ups and other businesses.
3. Any income derived from the transfer (including gift) of a Virtual Digital Asset (VDA) will be taxed at a rate of 30%, with no deductions or losses allowed except for the cost of acquisition. Furthermore, losses incurred as a result of VDA cannot be offset against other income or carried forward. In some situations, a TDS of 1% is imposed on the transfer of VDA. This will bring the nascent digital asset market within the tax net, putting an additional tax burden on taxpayers.
4. The Digital Rupee has arrived! Starting in the financial year 2022-23, the Reserve Bank of India will introduce Central Bank Digital Currency, which will be based on blockchain and other technologies. This would help India’s digital economy grow, as well as make money management more efficient and less expensive.
5. A new ray of hope for people with disabilities! Previously, a tax credit for insurance premiums paid for disabled dependents was only permitted if the scheme provided for an annuity or lump-sum payout upon the subscriber’s death (being the guardian or parent of disabled dependent). However, the deduction will now be possible even if the scheme provides for payment of the annuity or lump sum amount throughout the subscriber’s life if the subscriber reaches the age of 60 or older and stops paying into the scheme. This is done to alleviate the financial difficulty experienced by disabled people who require finances before the death of their parents or guardians.
6. Parity has been restored! Employees in the state government will be able to deduct up to 14% of their salaries for employer contributions to the NPS. This will level the playing field for federal and state government employees in terms of tax deductions for employer contributions to the NPS.
7. Tax evaders’ lives are becoming increasingly harder! Any losses will not be allowed to be offset against unreported income discovered by a tax department survey or search. This will inhibit tax evasion even more.
8. Fewer disagreements equal more trust! If an issue of law is already pending before a jurisdictional high court or the Supreme Court, the tax department cannot file another appeal in comparable situations for any other taxpayer until the question of law is resolved. This will cut down on litigation and make better use of time and resources in comparable situations.
9. Expenses incurred on exempt income are not deductible! There was some controversy regarding the deductibility of expenses made on exempt income where no exempt income was accrued or received during the financial year. This issue has recently been clarified, saying that expenses incurred to earn exempt income are not deductible, regardless of the year of accrual/receipt of the exempt income. As a result, there will be fewer lawsuits.
10. When a property is sold, the tax is calculated based on the higher the sale consideration or the stamp duty value of the property. TDS on such a sale of property, however, is only required to be deducted at 1% of the sale consideration. TDS must now be deducted on the selling consideration or the stamp duty value of such property, whichever is higher, to bring consistency between taxable income and TDS base.

Final Thoughts

While individual taxpayers have not received any large-scale tax breaks, there is hope that the Finance Minister’s goal of simplifying the tax system and lowering tax litigation would be achieved through various tax initiatives.