The latest Union Budget for the fiscal year 2022-23, presented by the Finance Minister in Parliament, focuses on simplified taxation and promoting voluntary compliance from taxpayers. The primary objective is to curb unnecessary litigation and bring about a transparent tax system. This article aims to outline the key proposals present in the budget with regards to Direct Taxes, their significance, and the subsequent changes made by the government.
Understanding Direct Taxes
Direct Taxes are levied directly on individuals and organizations by the imposing entity. Examples include income tax, real property tax, personal property tax, and taxes on assets. The current budget has retained the existing income tax slabs and tax rates for individual taxpayers.
Tax-related Proposals for Individuals
In a bid to provide flexibility to taxpayers, the government intends to open a one-time window to rectify errors or omissions in filed Income Tax Returns (ITRs). Taxpayers can utilize this opportunity to file updated returns within two years of the assessment years.
Tax Relief for Persons with Disabilities
A significant change includes considerations for differently-abled dependent individuals. The new proposal permits payment of annuity and lump sum amount to the differently abled dependent while the parents or guardians are still alive, specifically when they reach sixty years.
Parity between State and Central Government Employees
The tax deduction limit on employer’s contributions to the National Pension System account of State Government employees has been increased from 10% to 14%, bringing them at par with central government employees. This helps enhance social security benefits.
Proposed Changes for Corporates, Businesses & Co-operatives
To level the playing field between co-operative societies and companies, the Alternate minimum tax rate and Surcharge for Cooperatives is proposed to be reduced to 15% and from 12% to 7% respectively. This measure stands to benefit cooperative societies and its members, who are predominantly from rural and farming communities.
Incentives for Start-ups
Eligible start-ups that were established before March 2022 were provided with a tax incentive for three consecutive years in the previous ten years. However, given the Covid pandemic, the government has decided to extend this period by another year, i.e., until March 2023.
Introduction of Virtual Digital Assets Taxation
Income emerging from the transfer of any virtual digital asset will now be taxed at a rate of 30%. No deductions pertaining to any expenditure or allowance will be allowed while calculating such income, except the cost of acquisition.
Efforts to Simplify Taxation
One of the significant proposals includes deferring appeal filing by the department in cases where the question of law is identical to one pending in the High Court or Supreme Court until it is resolved by the court.
Timing the Tax Evaders
The government plans to restrict set-off of any loss against undisclosed income discovered during search and survey operations to deter tax evasions.
Tax Incentives for International Financial Services Centres (IFSC)
Certain incomes of non-residents from offshore derivative instruments and over-the-counter derivatives issued by an offshore banking unit are proposed to be exempted from tax.
Tax Rationalisation Measures
The government has acted to rationalise TDS provisions and surcharge on AOPs with a view to reducing the disparity between individual companies and AOPs, and to boost the start-up community. The surcharge on long-term capital gains arising on the transfer of any type of assets will be capped at 15%.
These changes in direct tax policies are aimed at enhancing the overall growth and development, planning, and budgeting of the nation. The aim is to promote inclusive growth and to mobilise resources effectively.