Taxation in 2022: Everything You Need to Know

Budget 2022 – A Brief Overview

The Union Budget 2022 was outlined by the country’s finance minister, Nirmala Sitharaman early last month. During her speech, Mrs Sitharaman listed its proposals. This budget brought with it tax reliefs to those that invest in capital assets barring listed stocks and equity funds. Long-term gains drawn from capital assets like artefacts, unlisted shares and property would have a tax payable that would be capped at 15 per cent. Further, this Budget also mentioned the fact that taxpayers would be given the opportunity to revise any errors they made while filing their income returns. This move comes despite the government clamping down on those who attempt to not disclose their income.

Understanding the Budget’s Impact on Income Tax 2022-2023’s Taxpayers

Gains on Assets Excluding Stocks and Equity Funds

Gains drawn from assets other than the ones mentioned above will have a surcharge applicable to them depending on the income slab of the taxpayer in question. Incomes that fall in the range of INR 2 crore – INR 5 crore have a 25 per cent tax rate applicable while those that exceed INR 5 crore have a 37 per cent tax rate applicable. These rates have experienced a hike of 25 to 27.4 percent which lies in contrast to the 11.5 per cent tax rate that applies to gains from stocks and equity investors.

Anticipated Beneficiaries

The limit imposed on the surcharge rate is likely to benefit overseas funds as well as NRI investors. Start-ups too will benefit from this move as they have long sought to have the surcharge on capital gains drawn from unlisted shares be brought down. ESOPs of unlisted companies are likely to benefit from this move as well.

Further, since the surcharge rate pertaining to long-term capital gains has been rationalised, investments directed towards capital assets will be encouraged. That being said, this proposal is likely to benefit those who have an income that exceeds INR 2 crore alone. This is because the surcharge applicable to income that falls below that level of income already amounts to 15 per cent.

Option to Correct Filing Errors

The most recent budget proposal has provided taxpayers with the opportunity to rectify any errors they might have made in misreporting their income at the time of filing their income tax returns for a given financial year. The new provision allows such taxpayers to file updated returns within two years from the end of a given assessment year having passed. This holds true regardless of whether or not a taxpayer has previously filed a return for the said assessment year. The updated return will be able to be filed once the taxpayer has paid 25 to 50 per cent as additional tax on the tax payable on the new income that has cropped up and is being filed.

Prior to this offering being introduced, the income tax department took part in an adjudication in order to understand whether any income had been missed out by the taxpayer. This process was long and cumbersome. The provisions provided under the new budget allow for the onus of reporting missed income to now lie in the hands of the income taxpayers.

In order to deter taxpayers from committing tax evasion, the Budget has made clear the fact that no loss will be allowed to be offset against undisclosed income being detected while search and survey operations are carried out. This move has come about owing to certain individuals who chose to set off their losses against undisclosed that was detected in search operations. This provision, therefore, prevents individuals from washing their hands off tax liabilities.

Tax Benefits for State Government Employees

A tax benefit amounting to 14 per cent is set to be claimable by state government employees on NPS contributions for the fiscal year 2022-2023. This move brings them at par with the central government’s employees. Thus far, state government and private-sector employees had a tax benefit capped at 10 per cent.

Non-filers to Pay Greater TDS

Taxpayers that haven’t filed returns for the previous assessment year will be required to pay a TDS that exceeds the amount paid by taxpayers who file income tax returns each year. As far as income drawn from NRI payments, sale of property, rental income, dividends, and deposits are concerned, a TDS in the range of 10 to 30 per cent is applicable. This figure will be greater in the event that returns have not been filed.

NRIs Exempt from Paying Certain Taxes

Income for NRIs drawn from interests on portfolio management services and leasing ships, royalty and offshore derivative instruments via international financial services centres have tax exemptions that are subject to conditions.

Disabled Folk Provided with Benefits

As far as insurance policies purchased by parents and guardians of disabled offspring are concerned, pay-outs are now permitted to be given to dependents even if their parents are alive and are over the age of 60. Previously the lump sum was only paid provided the policyholder died.

Wrapping Up

Understanding the extent to which each of these taxation revisions is successful is yet to be seen as taxpayers are yet to file their taxes keeping in mind these changes. That being said, tax relief of any kind is always welcomed by taxpayers.

Disclaimer: This blog is exclusively for educational purposes and does not provide any advice/tips on investment or recommend buying and selling any stock.