Expectations from the Budget 2022-23

Prabhat Nigam

22 Jan, 2022

Like every year, the Union Budget is set to come up on 1^st February, 2022 for the financial year of 2022-23. All the concerned people are eagerly waiting for the reforms for the upcoming financial year. While the last year’s budget centred on the theme of infrastructure development in the rural sector and healthcare sector and primarily focussed on the stimulus packages, this financial year the expectations from the Budget of 2022-23 revolve around the economic recovery, ease in compliances and relief measures to the common man.   

Industry-wise expectations from the Budget

Following are the industry-wise expectations from the Budget of 2022-23.

Real Estate Sector

Real Estate sector has been seeing signs of revival of the sector with the sales in the units reaching pre-Covid levels. While, the sector is bouncing back, it requires handholding from the government’s end in the following manner to see the revival of the sector and the demand reaching at great levels. The real estate sector has few recommendations for the government to be able to give a fillip to the demand in the real estate sector.

• They expect a rebate of upto Rupees 2 lakh on home loans interests under section 24 of Income Tax Act, 1961 with a single window clearance system.
• Grant the Real Estate industry the status of ‘industry’ which would help in availing cheap credit facilities.
• Waiver of GST on under-construction properties as a short term tax holiday and incentives for private investment in the affordable housing sector providing easy liquidity which will be helpful in the revival of the sector.
• Demands have been raised from the sector to bring down the TDS slab on the co-working spaces in case of services from the existing 10% to 2%. This will to maintain the cash flows for the co-working spaces owners.
• Given the major contribution of the real estate sector in the overall GDP of the country, to make it economically feasible for the stakeholders to complete the projects, the government should provide reductions in GST in the purchase of raw materials such as cement, steel etc.

Crypto currency 

• With humongous investments made in the crypto currencies by the investors, the industry demands clarity and transparency with regards to the future of crypto currency, its tax liability etc.
• There are uncertainties in the crypto currency space in terms of taxability, method of computation of their market value, reporting requirements, costs etc.
• Keeping this in mind, there have been demands from the industry to provide detailed framework for the taxation aspects of crypto currency which includes classification of crypto currencies whether as capital assets or as commodity or as a financial instrument.
• Some have recommended bringing the tax rate of 30% to 25 % with an increase in the threshold limit from the existing Rupees 10 lakh to 20 lakh.

Corporate sector

•  The corporate sector represented by the Associated Chambers of Commerce and Industry (ASSOCHAM) is batting for the reduction in the tax rates for the LLPs and small firms bringing them at par with the applicable tax rate on companies. The industry body said that most of the small and medium businesses are incorporated in the form of MSMEs and LLPs and therefore they should not be made to pay higher taxes which are higher compared to the companies. Charging these small businesses at a rate higher than the rate imposed on the corporate would affect these small firms adversely in covid times especially when these small businesses are the most affected ones.
• These small and big companies have borne the brunt of covid. They have suffered huge losses and covid related expenses at a time when business was down. These expenditures were in the form of payments to the employees, donations made in the government coffers, Corporate Social Responsibility funds, the businesses want the government to allow and claim full deductions for the losses and the covid related expenditure made by these firms.
• The MSMEs expect support in the form of financial support and reforms made in the import substitution so that these firms get the share of such business and at the same time make India self-reliant. Suggestions were made to include green energy in the MSME policies which will help the country to reduce its dependence on energy imports and help in creating a sustainable economy.
• Another important demand raised is the simplification of the GST compliances has become part of the expectations from the Union Budget of 2022-23.

Tax deductions for COVID patients

• Many people have suffered medically due to COVID. Some provided financial assistance while others paid medical bills from their own pockets. The expectations from the upcoming budget is that the government give tax deductions for both the above categories wherein those who provided financial assistance and those who suffered could claim deductions on medical bills because of Covid.
• Moreover, any extra amount received by the employee from their employer regarding the treatment of Covid must be recognised as tax free.
• Further, in case a person dies due to covid, then any financial assistance provided from the employer or from any other person must be exempted.

Tax deducted outside India must be treated as income of the assessee

• Section 198 of Income Tax Act, 1961 states that TDS must be included to form part of gross total income of the assessee.
• Often difficulties arise while computing the gross total income of the assessee where the assessee considers the gross total income after withholding of taxes paid in the foreign country and sending the net income after deducting taxes in India as total income. However, the AO while computing the gross total income of the assesse includes all the taxes paid outside India to form part of his total income.
• Such a conflict arises in computation of gross total income between the asessee and the AO because of the language of section 198 which includes only taxes collected or deducted in India but does not indicate including of the taxes paid outside to become part of the gross total income in India.
• Since, taxes paid outside India can be claimed as foreign credit under section 90 and 90A read with Rule 128, so expectations from the budget includes making amendments in section 198 to bring income earned outside India at par with the income earned in India.

Exemption must be allowed for purchasing an agricultural land before making the sale of agricultural land

• The current scheme of Income Tax Act under section 54B allows a person or an HUF to claim exemption of the capital gains made after the sale of agricultural land provided they are invested again in the purchase of another agricultural land within a span of two years from the date of transfer of such land. Further exemptions are also allowed under section 54 and 54F if the capital gains are invested in purchasing a residential house within a span of one year before the date of such transfer or within two years from the date of such transfer.
• However, the exemptions provided under the sections 54 and 54F do not extend to section 54B so far as exemption from capital gains made before transfer of agricultural land. So the expectations from the budget this year is to claim exemption from capital gains if an agricultural land is purchased before one year from date of the transfer of original asset.

Clarity with respect to taxability of Joint Development Agreements

• Amendments were made by inserting sub section 5A in section 45 of the Income Tax Act, 1961 which provided that capital gains generated from the Joint Development Agreements (JDAs) shall be chargeable to tax in the year completion certificate is issued by the competent authority. This is limited to those cases where the JDAs have been entered with an Individual or Hindu Undivided Family (HUF).
• However, there is no clarity made with respect to the taxability of the capital gains if the JDAs are entered into with an assessee who is not an individual or HUF. Therefore, the expectation from the budget is to provide clarity with respect to the taxability of the assessee who is not an individual or HUF.

Approach in the computation of ‘Month’

• Section 201(1A) talks about the interest rate to be paid on account of failure to pay TDS on time. So the interest rate to be paid amounts to 1.5% from the date when deduction was supposed to be made till the date actual payment is done. The question under dispute is the calculation of month for the interest to be calculated.
• For example if an assessee is supposed to make deduction on the date of 15^th January and make the payment on 2^nd of February, then the interest to be paid is of one month considering time period is less than thirty days. However, the AO considers it as two separate calendar months of January and February.
• The expectations from the budget is to compute the month in terms of days and not in terms of calendar months.

Extension of benefits of payment of Advance Tax in single instalments in case of presumptive schemes opted under section 44AE

• The Income Tax Act, 1961 provides for advance payment of taxes in four instalments at specific dates during a financial year under section 211. However, this section makes an exception of making payment 100 percent of advance tax in a single instalment on 15^th of March every year in cases of those taxpayers who have opted for a presumptive taxation scheme under sections 44AD and 44ADA.
• The expectations from the budget this year is to extend this benefit of making advance payment of tax in a single instalment in cases of those presumptive taxation schemes who come within the ambit of section 44AE.

Stoppage on denial of full tax exemption to the trusts for violation of s. 13

• A religious or charitable trust is eligible for certain tax exemptions of section 11 and 12. These tax exemptions can be denied to the religious or charitable trust under section 13 if the same extends benefits of certain kind to the interested person of the very same trust. Usually, the AO denies entire tax exemption under section 11 if the said trust commits violations under section 13.
• In a recent judgment, the Bombay High Court^[1] held that in case violation of section 13 has been committed by trust by extending benefits to a certain interested party, then the AO must deny exemption to the amount that was misappropriated by the trust under section 11 and not outrightly deny total exemption.
• This year there is expectation from the budget to make amendments in the act to limit the scope of total exemption on violation of section 13.

Read our Article:Crucial Financial Changes to kick in from 1 Jan 2022