Budget 2022: Top 5 Direct Tax Changes

Tax on income from virtual assets, a perpetual amnesty scheme of sorts for unreported income, cap on the surcharge on long term capital gains, end date for concessional rate of tax on dividend received from foreign companies, and timeline extension for manufacturing companies are among the key direct tax changes introduced in Budget 2022.

Here's a closer look at them:

Tax On Virtual Assets

Any income from transfer of a virtual digital asset such as cryptocurrencies, non-fungible tokens or NFTs are to be taxed at 30%. There will be no deduction in respect of any expenditure or allowance shall be allowed while computing such income, except cost of acquisition.

Tax deductible at source applicable at the rate of 1% above a certain threshold.

The government's move comes when there is no distinct provision in India's income tax law for taxation of cryptocurrencies.

"A silver lining here is that concerns regarding ban on cryptocurrency can be put to rest," L Badri Narayanan, executive partner at Lakshmikumaran and Sridharan Attorneys, told BloombergQuint. But, the taxation rate introduced seems to be a deterrent to the interest of the investors, he said.

Unreported Income

Taxpayers may realise that they have committed omissions or mistakes in correctly estimating their income for tax payment. A new provision has been introduced permitting taxpayers to file an updated return on payment of additional tax. This updated return can be filed within two years from the end of the relevant assessment year.

A taxpayer won't be allowed to file an updated return if:

• It is a return of a loss.

• Has the effect of decreasing the total tax liability.

• Results in refund or increases the refund due.

LTCG: Reduction Of Surcharge

Surcharge on long-term capital gains for all assets will now be 15%.

Currently, the long-term capital gains on listed equity shares, units, among others, are liable to maximum surcharge of 15%. But other assets are are subjected to a graded surcharge which goes up to 37%.

To bring parity, the surcharge on LTGC gains for all assets will be capped at 15%.

Girish Vanvari, partner at Transaction Square, explained that the reduction of surcharge on capital gains tax on unlisted company, brings in parity for shareholders. "This is more specifically relevant for startups where investors and more so founders partly exit in the journey," he said. "The rates will reduce from 28.5% to 23%."

Concessional Rate For Dividend: End Date

Finance Bill, 2022, proposes to do away with concessional rate of tax on dividend received from foreign companies.

Dividends received from a specified foreign company is taxable at 15% under Section 115-BBD. "Specified foreign company" means a foreign company in which the Indian company holds 26% or more equity stake.

This concessional rate of 15% will be discontinued effective April 1, 2023. This will make a difference to those which are repatriating cash from overseas subsidiaries, Ajay Rotti, partner at Dhruva Advisors, said.

"With the abolition of dividend distribution tax regime by Finance Act, 2020, dividend received by an Indian company from a domestic company became taxable at the corporate tax rate applicable to the Indian company," Amit Maheshwari, partner at AKM Global, pointed out.

The amendment has been proposed to create a level playing field, he said.

Relief For Manufacturing Companies

A concessional tax regime of 15% tax was introduced by the government for newly incorporated domestic manufacturing companies in 2019. To avail the benefit of the reduced rate, the company should start manufacturing or production of goods by March 31, 2023.

A company set up after Oct. 1, 2019, that commences manufacturing or production of goods by March 31, 2023 will have to pay 15% as corporate tax.

This has now been extended for one more year, till March 2024.