Income Tax

New Income Tax Rules effective from April 1, 2022

As the new financial year kicks in, there are many income tax rules that also sets in. From income tax on crypto assets to new tax rules on EPF interest, as a citizen you can’t afford to ignore major changes effective from 1^st April, 2022. If you haven’t browsed through the major changes yet, then you can refer to this piece of writing which lists down some of the new income tax rules which takes effect.

List of Major changes in income tax rules

Crypto Tax

The regime of crypto asset taxation will be implemented from 1^st April, 2022. The new rule of 30% tax will be effective from the start of the new financial year however the rule relating to 1% TDS will be effective from July 1, 2022. The Union Budget of 2022-23 brought in clarity on the levy of income tax on crypto assets. The threshold limit applicable for TDS will be 50000 rupees annually for specified persons which shall include individuals/HUFs who must get their accounts audited under the income tax act.

Moreover, if cryptocurrency or any other virtual digital asset is received in the form of a gift then also it will be liable for taxation.

Crypto losses can’t be set off against gains

The Indian government has implemented stricter regulations for crypto by disallowing set off of losses incurred in a digital asset against income from other version of crypto holding. The government will not permit tax breaks on infrastructure costs incurred while mining crypto assets as it will be not treated as the cost of acquisition. For example- Suppose you made a gain of 1000 rupees on bitcoin and incur a loss of 700 rupees on Ethereum, then tax will be levied on 1000 rupees gained and not on the net profit of 300 rupees. You cannot set off gains and losses on cryptocurrency against gains or losses made or incurred in other assets such as stocks, mutual funds or real estate.

Filing of updated return

A new provision has been inserted which allows taxpayers to file updated return for errors or mistakes made in the ITRs. Taxpayers can file an updated return within a period of two years from the end of the relevant AY.

The two year period starts from the end of the assessment year when the income should have been accounted. Therefore, if you had filed a return on December 31, 2021, then the AY ends on March 31, 2022, & you can file the updated return till March 31, 2024.

NPS deduction to employee of the state government

The employees of the state government will be able to claim deduction under Section 80CCD(2) of the IT Act for NPS contribution from the employer up to 14% of their basic salary and DA which is in line with the deduction available to the employees of the central government under Section 80CCD(2) of the IT Act.

Tax on PF account

As per the Central Board of Direct Taxes, Income-tax (25th Amendment) Rule 2021 shall kick in from 1^st of April. The provision of this rule provides a cap of tax-free contributions up to ₹2.5 lakh which will be imposed on the Employee Provident Fund (EPF) account. In case where the contribution is made more than this, then the interest income would be taxed.

Surcharge on Long Term Capital Gains

A cap of 15% surcharge is applicable presently on long term capital gain on the sale of listed equity or mutual funds. Here you should note that from the beginning of the new financial year, this cap of 15% shall be extended to long term capital gain on all assets.

No additional deduction benefit

Earlier, there was an additional deduction benefit on home loan interest upto 1.5 lakh rupees on house properties of a value less than 45 lakh rupees for first time home buyers. However, this benefit will no longer be available to taxpayers as the finance minister has not extended this scheme beyond March 2022. Other deductions that are existing on account of home loan interest up to 2 lakh rupees will be continued under section 24 of the Income Tax Act.

Tax relief for Covid-19 treatment expenses

Last year the finance ministry had announced that income tax will not be charged on the amount obtained by a taxpayer from her employer for Covid-19 treatment expenses. Further, if you have received money from someone else, such amount will also not be taxed. Additionally, if a deceased Covid-19 affected person’s family members receives any ex-gratia payment such payment will also be exempt. This announcement was made in June 2021 but was formally included in the Finance Bill 2022-23^[1].

Tax relief to persons with disability

Budget 2022-23 introduced a tax deduction benefit for the parent/guardian of a disabled persons. It states that in case where a parent/guardian of a disabled person purchases a savings life insurance policy with the beneficiary being the disabled person, then the parent/guardian shall be eligible to deduction from gross income before tax subject to some conditions.

Conclusion

As a taxpayer you should be aware of these changes that are set to kick in from the beginning of the new financial year. These new income tax rules can have an impact on how much you save, spend and pay in taxes. Hence do take a note of it.

Read our Article:Section 194R of the Income Tax Act- Brief Analysis