We all are in stuff of flux, with regards to are we in middle of Pandemic or are we nearing Endemic. With new variants and newer waves, Covid19 has made a journey from prime-time news to parting remarks in Daily News. In this background, Hon’ Minister of Finance, Mrs. Nirmala Sitaraman ji, presented her 4th budget in the Lok Sabha.
Union Budget 2022-23 was presented on 1st February 2022 and was the shortest budget speech by the Honorable Minister however by all means impactful. It started with clear focus on Infrastructure push by the government. The PM GatiShakti has set ball rolling with widespread impetus to logistics parks, railways, Urban transport, Agriculture, Multimodal transport, drones, new technology, etc.
Though Policy changes weren’t part of the Budget, however changes are soon expected in Insolvency & Bankruptcy Code to facilitate cross border Insolvency resolution and in New SEZ legislation. Local manufacturing continues to get Government’s priority. This time Defense indigenization and local manufacturing is part of Government’s plan for Defense sourcing. Much awaited 5G airwaves auction is expected in FY 2022-23.
On the back of these slew of measures, the government is expected to mop up higher direct & indirect tax collections as we witness the Economy going past pre-pandemic levels. The various direct & indirect tax measure are detailed in this note. Overall, all aim is towards wider tax collections, ease to people and doing away with old anomalies.
Hon’ Minister delivered a budget that is futuristic and guides the economy towards a phase of high growth. Team KDG has tried to put together a synopsis of key amendments and changes presented in the Union Budget 2022-23.
Indian Economy has reached pre pandemic levels in the background of Covid-19 pandemic. Aggressive government policies towards health infrastructure, capex on infrastructure and implementing supply side measures has helped in regaining economic activity. Vaccination has played a critical role in minimizing loss of lives and boosting confidence in the economy activity. Employment is estimated to be back to pre-pandemic levels as seen from monthly net addition in EPF subscription and demand for MNREGA work. Foreign exchange reserves stood at record high of USD 634 Billion as on 31st December 2021 making India 4th largest forex reserves holder. This is equivalent to 13.2 months of imports and higher than country’s external debt.
GDP is expected to be at Rs. 222.87 Lakh Crore in 2021-22. This will take the economic activity to pre pandemic levels. The expected growth in GDP to be 9.2% in 2021-22 after a contraction of 7.3% in 2020-21. Budget Estimate (BE) for 2022-23 suggests the Indian economy to witness GDP growth of 8.0-8.5%.
Budget 2021-22 estimated a fiscal deficit of Rs. 15.07 Lakh Crore of GDP. The fiscal deficit for as on November 2021 has been contained at 46.2% of 2021-22 BE. Fiscal Deficit is now revised to 6.9% of GDP for 2021-22. The Fiscal Deficit target as per 2022-23 BE is estimated to be 6.4% of GDP.
Revenue Receipts & Market Borrowings
The tax collections have been buoyant for both direct and indirect taxes. Gross Tax Revenues is estimated at Rs. 22.17 Lakh Crore for 2021-22 BE up by 9.5% over 2020-21 Provisional Actuals and 10.2% growth over 2019-20.
For 2022-23 BE, total receipts other than borrowings is estimated at Rs. 22.84 Lakh Crore. The Government is likely to miss its divestment targets. As against 2021-22 BE of 1.75 Lakh Crore from Divestment proceeds, Government has received Rs. 9,330 Crore as on 24 January 2022 which is 5.3% of 2021-22 BE.
Total dividend receipts in the current fiscal year as on 24 January 2022 stood at Rs. 40,201 Crore. The gross monthly GST collections have crossed Rs. 1 Lakh Crore consistently since July 2021. In the month of January 2022, GST collected was Rs. 1.4 Lakh Crore which is highest ever. The 2021-22 RE for the market borrowings are Rs. 8.75 Lakh Crore as against BE of Rs. 9.67 Lakh Crore. 2022-23 BE for market borrowings are expected to be at Rs. 11.58 Lakh Crore.
**BE=Budget Estimates, RE= Revised Estimates
In Budget 2021-22, Total Expenditure had been estimated at Rs. 34.83 Lakh Crore which is now revised to Rs. 37.70 Lakh Crore as per 2021-22 RE. 2022-23 BE of Total Expenditure is estimated at Rs. 39.45 Lakh Crore. Budget 2021-22 had estimated Capital expenditure at Rs. 5.54 Lakh Crore. For 2022-23 BE, Capital Expenditure is being estimated at Rs. 7.5 Lakh Crore which is 35.4% increase.
Growth in FY23 to be supported by vaccine coverage, gains from supply-side reforms and easing of regulations. Robust growth in exports and availability of fiscal space to ramp up capital spending are going to support growth for next fiscal. Initiatives like Atmanirbhar Bharat, PLI Scheme, Monetization Plan, aligning of National Infrastructure Pipeline with PM GatiShakti framework will give impetus to make India the fastest growing major economy in the world.
KEY DIRECT TAX CHANGES
Introducing of new ‘Updated return’
• Provision to file an Updated Return on payment of additional tax.
• Will enable the assessee to declare income missed out earlier.
• Can be filed within two years from the end of the relevant assessment year.
• Alternate Minimum Tax paid by cooperatives brought down from 18.5 per cent to 15per cent.
• Surcharge on cooperative societies reduced from 12 per cent to 7 per cent for those having total income of more than Rs 1 crore and up to Rs 10 crores.
Tax Relief to persons with Disability
• Deduction is now allowable on premium amount paid for Annuity and lumpsum amount paid to disabled dependent is allowed if such annuity or lumpsum amount is payable on death of individual or individual attaining the age of 60 years.
• Earlier, such benefit was allowed only if the policy amount was payable on death of individual.
Parity in National Pension Scheme Contribution
• Tax deduction limit increased from 10 per cent to 14 per cent on employer’s contribution to the NPS account of State Government employees.
• Brings them at par with central government employees.
Incentives for Start-ups
• Period of incorporation extended by one year, up to 31.03.2023 for eligible start-ups to avail tax benefit u/s 80-IAC.
• Previously the period of incorporation valid up to 31.03.2022.
Incentives under Concessional Tax Regime
• Last date for commencement of manufacturing or production under section 115BAB extended by one year i.e. from 31st March, 2023 to 31st March, 2024.
Scheme for Taxation of Virtual Digital Assets
• Specific tax regime for virtual digital assets (eg: cryptocurrency, NFTs, etc) introduced.
• Any income from transfer of any virtual digital asset to be taxed at the rate of 30 percent and no set off of any loss under any provision of the Income Tax Act, 1961 shall be allowed while computing this income.
• No deduction in respect of any expenditure or allowance to be allowed while computing such income except cost of acquisition.
• Loss from transfer of virtual digital asset cannot be set off against any other income.
• To capture the transaction details, TDS to be provided under section 194S on payment made in relation to transfer of virtual digital asset at the rate of 1 per cent of such consideration exceeding specified threshold.
• Gift of virtual digital asset also to be taxed in the hands of the recipient.
• In cases where question of law is identical to the one pending in High Court or Supreme Court, the filing of appeal by the department shall be deferred till such question of law is decided by the court
• To greatly help in reducing repeated litigation between taxpayers and the department.
Tax Incentives to IFSC
• Subject to specified conditions, the following to be exempt from tax:
Income of a non-resident from offshore derivative instruments
Income from over the counter (OTC) derivatives issued by an offshore banking unit
Income from royalty and interest on account of lease of ship
Income received from portfolio management services in IFSC
Rationalization of Surcharge
• Surcharge on AOPs (consortium formed to execute a contract) capped at 15 per cent.
• Earlier, surcharge was restricted to 15% on Long-term Capital Gains on transfer of quoted equity shares.
• Now, surcharge on long term capital gains arising on transfer of any type of assets capped at 15 per cent.
Health and Education Cess
• Any surcharge or cess on income and profits not allowable as business expenditure
Deterrence against tax-evasion
• No set off, of any loss to be allowed against undisclosed income detected during search and survey operations.
Rationalizing of TDS Provisions
• A new provision by way of Section 194R is introduced wherein TDS at the rate of 10 per cent, if the aggregate value of such benefits exceeds Rs 20,000 during the financial year, shall be deductible on any benefit or perquisite given to any resident in the course of his business or profession. Eg: TDS shall be deductible on benefits passed on to agents as business promotion strategy.
• As per Section 194-IA TDS shall be deducted at 1 per cent of sale consideration or stamp duty value, whichever is higher.
Tax on Dividend received from Specified Foreign Company:
• Earlier, dividend received by domestic company from a foreign company in which such domestic company holds 26 per cent or more share capital used to be taxable at 15 percent of total dividend.
• However, from Financial Year 2022-23, such dividend shall be taxable as per normal provisions of the Act.
Amending special provisions for TDS/TCS for non-filers of ITR:
• Tightening the requirement of two years window to one year by amending Sections 206AB and 206CCA in relation to Specified Person.
Bonus Stripping and Dividend Stripping:
• To amend explanations under Section 94, pertaining to prevention of tax evasion through bonus stripping or dividend stripping.
Refund for wrongly deducted TDS for NRIs
• New Section 239A provides for filing of application for refund of wrongly deducted TDS for NRIs.
Clarification to Section 14A
• Clarification is brought to disallow expenses incurred during the previous year under Section 14A where exempt income is not accrued or arisen during the previous year.
KEY INDIRECT TAX CHANGES
The time limit for availing the credit or issuance of invoice / credit note / debit note and rectification in GSTR 1 and GSTR 3B has been extended to 30th November instead of September of subsequent year.
To ensure input credit is claimed as per GSTR 2B, Section 42, 43 and 43A has been omitted and provisions relating to provisional availment of credit, subsequent matching and reversal mechanism are also omitted.
Changes have been made to ensure GSTR 3B can be filed only if GSTR 1 is filed and GSTR 1 can be filed only for a month.
The provisions are relating to GSTR-2 and GSTR-3 are omitted and the changes have been made in section 37.
Balance in Cash Ledger (IGST & CGST) is now allowed to transfer to any other GSTIN in the same PAN, subject to that there is no unpaid liability in the electronic liability ledger.
Meaning of the term ‘Proper officer’ u/s 2(34) is modified to cover the officers who is assigned those functions by the Board or the Principal Commissioner/ Commissioner of Customs u/s 5 of the Customs Act, 1962.
Amendment is brought under Section 3 of the Customs Act to include Officers of DRI, Audit and Preventive formation as the class of officers of Customs.
Importer who intends to avail the benefit of an exemption notification shall intimate the commissioner and follow specified procedure
Importer to give information regarding receipt of imported goods, maintain records and file return quarterly
Special Economic Zones
The SEZ Act will be replaced with a new legislation that will enable the states to become partners in ‘Development of Enterprise and Service Hubs’.
Customs Administration of SEZs to be fully IT driven and function on the Customs National Portal – shall be implemented by 30th September 2022.
Project Imports and Capital goods
Gradually phasing out of the concessional rates in capital goods and project imports; and applying a moderate tariff of 7.5 percent – conducive to the growth of domestic sector and ‘Make in India’.
Certain exemptions for advanced machineries that are not manufactured within the country shall continue.
A few exemptions introduced on inputs, like specialised castings, ball screw and linear motion guide – to encourage domestic manufacturing of capital goods.
Review of Customs Exemptions and Tariff Simplification
The exemption on certain agricultural produce, chemicals, fabrics, medical devices and drugs and medicines for which sufficient domestic capacity exists will be removed.
Removal of exemption on items which are or can be manufactured in India and providing concessional duties on raw material that go into manufacturing of intermediate products.
This comprehensive review will simplify the Customs rate and tariff structure particularly for sectors like chemicals, textiles and metals and minimize disputes.
Customs duty rates are being calibrated to provide a graded rate structure to facilitate domestic manufacturing of wearable devices, hearable devices, and electronic smart meters.
Duty concessions are also being given to parts of transformer of mobile phone chargers and camera lens of mobile camera module and certain other items. This will enable domestic manufacturing of high growth electronic items.
Gems and Jewellery
Customs duty on cut and polished diamonds and gemstones is being reduced to 5 per cent.
To disincentivize import of undervalued imitation jewellery, the customs duty on imitation jewellery is being prescribed in a manner that a duty of at least Rs.400 per Kg is paid on its import.
Customs duty on certain critical chemicals namely methanol, acetic acid and heavy feed stocks for petroleum refining are being reduced, while duty is being raised on sodium cyanide for which adequate domestic capacity exists. These changes will help in enhancing domestic value addition.
Customs duty exemption given to steel scrap last year extended for another year to provide relief to MSME secondary steel producers.
Certain Anti- dumping and CVD on stainless steel and coated steel flat products, bars of alloy steel and high-speed steel are being revoked – to tackle prevailing high prices of metal in larger public interest.
Exemption being rationalised on implements and tools for Agri-sector which are manufactured in India.
Customs duty on umbrellas being raised to 20 per cent. Exemption to parts of umbrellas being withdrawn.
To incentivize exports, exemptions are being provided on items such as embellishment, trimming, fasteners, buttons, zipper, lining material, specified leather, furniture fittings and packaging boxes used as input.
Duty is being reduced on certain inputs required for shrimp aquaculture to promote its exports.
Tariff measure to encourage blending of fuel
The unblended fuel shall attract an additional differential excise duty of Rs. 2/ liter from the 1st day of October 2022.
• National Highway Netwrok to be expanded by 25,000 kms during FY2022-23. Rs. 20,000 crores to be financed through public funding
• FY 2022-23, PM Gatishakti Master plan to be formulated and 4 multi-modal national parks contracts will be awarded
• “One Station One Product”concept to be popularised with introduction of 400 new-generation Vande bharat trains
• 100 PM GatiShakti Cargo terminals in next 3 years
• 2,000 kms of network will be brought under “Kavach”
• Reducing imports and promoting self reliance
• 68% of capital procurement budget in defence will be earmarked for domestic industry
• Private industry will be encouraged to take up design and development in collaboration with DRDO.
Digital Banking And Currency
• Post office will be linked through Central anking System (CBS) enabling interoperability .
• Proposal by RBI to introduce digital Rupee leading to a more efficient and cheaper currency management system
Affordable Housing& Urban Planning
• FY2022-23 80 lakhs houses will be completed for the eligible beneficiary of PM AWAS Yojana. Rs. 4,8000 crores allocated for the same.
• Rs. 60,000 crores allocated for provising access to tap water to 3.8 crore housholds
Power & Other Infrastructure
• Rs. 19,500 crores additional allocation for PLI for manufacturing high efficiency solar modules
• Spectrum auction will be conducted in FY2022-23 for the rollout of 5G
• Contract for laying optical fibre cables in village to be awarded under BharatNet project under PPP model
MSMEs and Startups
• Rs. 6,000 crores programme to rate MSMEs
• Fund with blended capital raised under co-investment model facilitated through NABARD tofinance startups in Agri & Rural enterprises for farm produce value chain
• Starups will be promoted for Drone Shakti
• Battery Swapping policy to allow EV charging stations for automobiles will be framed
• Private sector will be encouraged to create sustainable and innovative business models for battery and energy as a service
Hospitality & Travel
• Additional amount earmarked under Emergency Credit Line Guarantee Scheme (ECGLS) for Hospitality and Allied Sectors
• E-passports will be rolled out in FY2022-23 for conveinence in overseas travel
• E-passport with embedded chip will be rolled out
This article was contributed by Kanu Doshi Group, a member of RT ASEAN
About Kanu Doshi Group
Headquartered in Mumbai, India, KDA Corporate Advisors LLP is the Investment Banking arm of Kanu Doshi Group which specializes in providing professional services relating to Advisory, Assurance, Accountancy, Taxation, and Regulatory matters, amongst others. Established in 1979, the firm has since grown strength to strength, expanding its footprint across the region and beyond. Today, it is positioned as one of the top mid-tier firms in India.