Indian Finance Minister Ms. Nirmala Sitharaman presented India’s budget for the year 2022–23 in the Parliament on February 1, 2022. The Finance Ministry has now notified the Finance Act, 2022 consequent to passing of Finance Bill, 2022 in the Parliament. Certain amendments were made when the Finance Bill was passed in Lok Sabha (the lower house of Indian Parliament).
The key provisions of Finance Act, 2022 are as under:
Direct Tax (Income Tax)
Tax Rates
Individuals:
There are no changes made in Personal Income Tax slabs and rates in the Finance Act, 2022. The tax rates applicable for FY 2022-23 (to individuals, other than senior citizens) are same as applicable for FY 2021-22, which are as under:
| Standard Tax Regime (The exemptions and deductions are available) | Optional Tax Regime (The exemptions and deductions are not available) | ||
| Annual Taxable Income (In INR) | Income Tax Rate | Annual Taxable Income (In INR) | Income Tax Rate |
| Up to 2,50,000 | Nil | Up to 2,50,000 | Nil |
| 2,50,001 to 5,00,000* | 5% | 2,50,001 to 5,00,000* | 5% |
| 5,00,001 to 10,00,000 | 20% | 5,00,001 to 7,50,000 | 10% |
| Above 10,00,000 | 30% | 7,50,001 to 10,00,000 | 15% |
| 10,00,001 to 12,50,000 | 20% | ||
| 12,50,001 to 15,00,000 | 25% | ||
| Above 15,00,000 | 30% | ||
* Individual taxpayers having taxable income up to INR 5,00,000 get full tax rebate (INR 12,500) and are not required to pay income tax. Please note that taxable income exceeding INR 5,00,000 does not get any benefit from such tax rebate and hence individuals must pay income tax on full taxable income (exceeding INR 2,50,000).
The tax computed as above is to be further increased by surcharge at rates mentioned below and cess @ 4%.
- Income (all kinds of income) exceeding INR 5 million but not exceeding INR 10 million – 10%
- Income (all kinds of income) exceeding INR 10 million but not exceeding INR 20 million – 15%
- Income (excluding income from dividend and specified capital gains) exceeding INR 20 million but not exceeding INR 50 million – 25%
- Income (excluding income from dividends and specified capital gains) exceeding INR 50 million– 37%
- In case of the last two situations mentioned above, surcharge at 15% is applicable on income from specified capital gains and dividend
Companies:
There is no change in corporate income tax rates (CIT). The key CIT rates applicable to Indian companies are as under:
| Category/ Condition for FY 2022-23 | Income Tax Rate (Excluding surcharge and cess) |
| Domestic manufacturing companies incorporated on or after October 1, 2019, and which commence manufacturing on or before March 31, 2024 (extended from March 31, 2023) and have opted for special/ optional tax regime | 15% |
| Companies opting for special/ optional tax regime where exemptions/deductions cannot be claimed | 22% |
| Company with total turnover or gross receipt in the FY 2020-21 not exceeding INR 4 billion | 25% |
| Any other domestic company | 30% |
The above tax is further increased by surcharge at rates mentioned below and cess @ 4%
- Companies with taxable income exceeding INR 10 million but less than INR 100 million – 7%
- Companies with taxable income exceeding INR 100 million – 12%
- Company opting for special/ optional tax regime as mentioned above – 10%.
Key changes
The tax amendments listed below are applicable for Financial Year (FY) 2022-23 corresponding to Assessment Year (AY) 2023-24, unless specified otherwise.
- For promoting voluntary tax compliance and reducing litigation, a new provision is introduced effective AY 2022-23, allowing the taxpayers (subject to certain exceptions) to file an ‘Updated Return’ within two years from the end of relevant assessment year on payment of additional tax, irrespective of filing of return previously. The additional tax equals to 25% (if furnished within 1 year) or 50% (if furnished after 1 year but within 2 years) of the amount of tax and interest due on the additional income disclosed in the Updated Return.
- A clarification is inserted specifying that any surcharge or cess levied on taxes is not a deductible expense while computing taxable income, effective from AY 2005-06. The cases where such deduction had been claimed by the taxpayer, it would be treated as under-reported income and would be subject to a penalty. In order to avoid penalty, Taxpayers, by filing an application to the tax office, can request for a re-computation of total income by disallowing such claims.
- In respect of disallowance of expenses in relation to exempt income, it is clarified that it also applies where exempt income has not accrued/ arisen/ received during the year, but the expenditure has been incurred during the year in relation to such exempt income (Effective from AY 2022-23).
- It is clarified that deduction for interest payable on loan/ borrowing from specified financial institution/ NBFC/ scheduled bank/ co-operative bank is allowed only if such interest has been actually paid and such deduction cannot be claimed on conversion of interest payable into debenture or any other instrument deferring the liability to a future date.
- The period provided for incorporation of eligible start up for claiming tax exemption is extended from March 31, 2022, to March 31, 2023. The eligible start up can claim 100% tax exemption for 3 consecutive assessment years out of 10 years beginning from the year of incorporation, at the option of the taxpayer, subject to certain conditions.
- For the entities (predecessor and successor) going through the process of reorganisation, it is provided that – a) the audit or other proceedings pending/ completed on the predecessor shall be deemed to have been made on the successor b) such entities are allowed to file modified returns for the period between the date of effectivity of the reorganisation order and the date of issuance of said order by the relevant authority (Effective from AY 2022-23).
- During the year 2021, certain provisions for faceless interaction with tax authorities were introduced to eliminate the human interaction between taxpayer and the tax authorities by conducting proceedings through digital means. Several procedural changes are now proposed to faceless assessment regime. Further, the deadline for issuing guidelines/ regulations is extended to March 31, 2024, in respect of transfer pricing audits and appeals before tax appellate tribunal.
- Consequential amendment to provide that any sum received from an employer towards any expenditure actually incurred by the employee on his medical treatment or treatment of any member of his family in respect of any illness relating to COVID-19, subject to prescribed conditions, shall not be a taxable perquisite.
- Taxation of virtual digital asset, such as crypto-currencies, non-fungible tokens:
- Introduction of tax @ 30% on transfer/ gift of any virtual digital asset, whether it is a capital asset or not.
- Deduction for any expenditure or allowance is not allowed while computing income from such transfer, except cost of acquisition, if any.
- Loss from transfer of virtual digital asset cannot be set off against any income including income from other virtual digital assets nor it can be carried forward.
- Withholding obligation is introduced on payment made in relation to transfer of virtual digital asset @ 1% of the consideration exceeding specified monetary threshold.
Indirect Tax
Goods and Service Tax (GST)
- Timeline is extended for availing input tax credit up to 30th November of the following Financial Year.
- Cancellation of registration in case of failure to file tax returns viz. (i) in case of composition dealer – non filing of return within 3 months from the due date (ii) for other registered persons – non-filing of return for continuous tax period, as may be prescribed.
- Due date for filing of return by non-resident taxable person will be 13th of the following month as against 20th of the following month.
Customs duties
- Phasing out concessional rates in capital goods and project imports gradually and applying a moderate tariff of 7.5%.
- Review of customs exemptions and tariff simplification.
- Customs duty rates are being calibrated to provide a graded rate structure to facilitate domestic electronics manufacturing.
Other
- Amendments to Insolvency and Bankruptcy code to facilitate cross border insolvency resolution and enhance the efficacy of resolution process. Further, system for accelerated corporate exit would be established to facilitate voluntary winding up so that timeline is reduced from 2 years to 6 months.
- New Special Economic Zones legislation will replace the existing Special Economic Zones Act to allow better collaboration with states and to enable optimum utilization of available infrastructure. Further, reforms would be undertaken in Customs administration to enable IT driven administration of SEZs and risk-based checks to facilitate ease of doing business.
- Indian Central Bank (Reserve Bank of India) to introduce Central Bank Digital Currency (CBDC) using blockchain and other technologies, starting 2022-23.
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