Personal Taxation: Budget 2022 Personal Tax Proposals and Their Impact on Taxpayers

The 2022 Union budget provided tax relief for those who invest in fixed assets other than equity funds and listed shares. The surtax on tax payable on the long-term capital gains of such fixed assets – real estate, unlisted shares, artefacts – would be capped at 15%. The budget also gives taxpayers the opportunity to correct errors made in reporting income when filing returns, even as it prevents getting away with undisclosed income.

The surcharge on long-term capital gains of equity and listed equity funds is already capped at 15%. But for gains from other assets, the surtax is based on the income bracket of the taxpayer. It is 25% for incomes of Rs 2 crore to Rs 5 crore and 37% for incomes above Rs 5 crore. This has increased the effective tax on capital gains of these assets to 25-27.4%, compared to 11.5% payable on capital gains of equity funds and stocks .

“NRI investors and foreign funds are likely to benefit from the capping of the surcharge rate,” says Amit Maheshwari, tax partner, AKM Global. Reducing the surcharge on capital gains on unlisted shares has also been a longstanding demand from startups. It will benefit holders of Esops from unlisted companies.

“Streamlining the long-term capital gains surcharge rate will encourage investment in fixed assets,” says Amit Singhania, Partner, Shardul Amarchand Mangaldas & Co. But the proposal will only benefit those whose income is higher than Rs 2 crore, as the surcharge on income below this income level is already 15%.

The budget also sought to give taxpayers the opportunity to rectify errors related to misreporting of income when filing the tax return for a fiscal year. It created a provision allowing such taxpayers to file an updated return within two years of the end of the relevant tax year. This is regardless of whether the taxpayer has already filed a return for the tax year concerned or not. The filing of the updated declaration will only be authorized after payment of an amount equal to 25% or 50% as additional tax on the tax due on the additional income provided.

Currently, a person only has time until December 31 of the relevant assessment year to file a revised ITR. Amit Gupta, MD and Co-Founder, SAG Infotech, says, “The updated filing provision is much better than the previous one with a maximum two-year delay until the end of the assessment year. .”

Currently, if the income tax service finds that income has been missed by the assessee, it goes through a lengthy arbitration process. Instead, with this proposal, there will be a trust in taxpayers that will allow self-assessed people to report income they may have missed earlier when filing their return. Sudhir Kaushik, CEO of Taxspanner, observes: “Sometimes the filer fails to report certain income, either out of ignorance or otherwise, but this is recorded in the annual information return. This triggers a notice to the taxpayer who then has to go through a lengthy appeal process. This new provision will ease the burden on the taxpayer and allow sufficient time to have the tax return corrected without punitive action. However, certain other conditions must also be met in order to file up-to-date tax returns. According to the budget memorandum, there should be no decrease in tax payable or refund of income tax from the updated ITR.

In addition, to deter tax evasion, the budget provided that no loss compensation will be allowed on undisclosed income detected during search and investigation operations. This is in response to instances where individuals or entities have reported losses on undisclosed income detected during research operations. With this provision, these people will no longer find room to avoid tax liability. “Some entities have been found to use business losses as a cover to oppose the confiscation of money. This provision puts an end to that argument,” Kaushik points out.

Other tax proposals

Parity for state employees

State employees will be eligible for a 14% tax benefit on NPS contributions from the 2022-23 fiscal year, putting them on par with state employees. Until now, the tax benefit was capped at 10% for state and private sector employees.

Higher TDS for non-filers

Taxpayers who have not filed a return for the previous tax year will be subject to a higher TDS. 10-30% TDS is applicable on interest income from deposits, dividends, sale of property, NRI payments and rental income. It will be higher if the returns have not been filed.

Tax exemption for NRIs

NRI income from offshore derivatives, royalties and interest on vessel leasing, and portfolio management services based on International Financial Services Centers or the City of GIFT will be exempt from tax. This exemption is subject to conditions, specified the Minister of Finance.

Disability benefit

For insurance policies taken out by parents/guardians of disabled children, the payment can now be paid to the dependent even if the parent is alive, if they are over 60 years old. Thus, the premium may be deducted under Article 80DD even if the parent is alive and over 60 years old. Previously, the annuity/lump sum was only paid on the death of the policyholder. “Another point, which needs more clarity, is that the payment will no longer be taxable,” says Sanjay Datta, underwriting manager, ICICI Lombard General Insurance.