Union Budget 2022: Important Announcements that Impact Individual Taxpayers
The Direct Tax measures in Budget 2022 were made to simplify the tax system, encourage voluntary compliance by taxpayers, and minimise litigation, in keeping with the Government’s objectives to establish a stable and predictable tax regime.
While no changes to income tax slabs or rates are proposed, the budget does include certain recommendations that will affect individual taxpayers.
Introduction of updated tax returns
A belated return or revised return can be filed before 3 months from the end of the relevant assessment year if an individual has not filed a tax return by the due date or discovers an omission/wrong statement in the return filed (i.e. a belated return or revised return for the financial year 2022-23 can be filed before 31 December 2023).
The budget suggests that updated tax returns be implemented. Whether or whether a person has filed an original/belated/revised tax return, an updated tax return for the financial year may be filed in the specified form within 24 months after the end of the relevant assessment year (i.e. an updated tax return for the financial year 2022-23 may be filed by 31 March 2026).
However, if the tax return results in a loss or refund, or if search/ survey proceedings have been initiated, or if assessment/ reassessment/ prosecution proceedings have been initiated by the tax authorities, or if an updated tax return has been filed for the financial year, an updated tax return cannot be filed.
Aside from the tax, interest, and charge for late filing, the person filing an amended return must also pay additional tax on omitted income, and proof of payment must be included with the updated tax return.
Scheme for taxation of virtual digital assets
The budget proposes a new definition of virtual digital assets that includes any information, code, number, token, or non-fungible token that provides a digital representation of value traded, as well as a new taxation plan for such virtual digital assets.
The income derived from the sale of such assets will be taxed at a rate of 30%. Except for acquisition costs, no deductions will be allowed in calculating taxable income. Losses incurred as a result of the transfer of such assets cannot be offset against other sources of income. It is also proposed that gifts of virtual digital assets be taxed in the recipient’s hands.
Furthermore, anyone responsible for paying a resident any money for the transfer of an asset will be required to deduct a 1% tax at the time of credit or payment, whichever comes first. No tax deduction will be required if (i) aggregate value of consideration does not exceed INR 50,000 during the financial year in case of a specified person or (ii) aggregate value of consideration does not exceed INR 10,000 during the financial year in case of a person other than a specified person. The term “specified person” is defined in the proposed legislation.
Long-term capital gains will be subject to a 15% surcharge
Long-term capital gains on listed stock shares, equities-oriented mutual fund units, and similar securities are currently subject to a maximum surcharge of 15%, while other long-term capital gains are subject to a maximum surcharge of 37 percent, depending on the individual’s taxable income. The budget proposes capping the surcharge on all long-term capital gains to 15% to lessen the tax burden.
Tax relief on insurance premiums paid for the support of disabled people
The Act allows an individual (parent/guardian) to deduct INR 75,000 (or INR 1,25,000 in the case of severe disability) from the sum paid under an insurance programme for the upkeep of a dependent who is disabled. Currently, such a deduction is permitted where the plan provides for the payment of an annuity or lump sum to the dependent upon the parent’s or guardian’s death.
The budget wants to expand the deduction to include plans that provide for the payment of an annuity or lump sum to a dependant when the parent or guardian reaches the age of 60 or more, and when payments or deposits to the plan have ceased.
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.