Proposed changes in Personal taxation in 2022 Budget

Personal taxation

The Union Finance minister has recommended certain changes in the Finance Bill, 2022 through Union Budget 2022-23 relating to personal taxation. There were expectations that the Government will introduce certain tax breaks in personal taxation owing to the losses faced by people in the pandemic. However, the budget of 2022 kept its focus on providing stability to the taxpayers and encouraging the taxpayers to make voluntary compliances. Further, the Union Finance Minister did put to rest the issue of taxation of cryptocurrecy. Following are some of the significant changes relating to the personal taxation relating individual taxpayers introduced in the budget of 2022.

Proposed changes relating to Personal taxation

The Finance Bill, 2022 has made the following changes in relation to personal taxation:

  • Option to file an updated return to the taxpayer:  The government has proposed to provide the option of filing an updated return within a period of 2 years from the end of the relevant financial year. This provision will give the assessee an opportunity to report additional income which the assessee inadvertently missed in the original tax return. It is not that there was no provision of revision of tax returns by the assessee earlier. The assessee had the option of revising their tax returns within a limited time frame of 5 months from the due date of filing income tax returns. With the proposed amendment, the time frame to file an updated return has been extended to a period of 2 years from the end of the relevant financial year.
  1. However, at the time of filing of an updated return on additional income, the assessee need to pay an additional tax at the rate of 25% if the return is filed within a period of one to 12 months or 50% additional tax if the updated return is filed within a period of 13 months to 24 months from the end of the relevant assessment year but before the proceedings begin against the assessee.
  2. It must be noted that an additional tax must be submitted before filing of an updated tax return and the proof thereof needs to be attached while filing an updated return.
  3. This step will encourage the tax payers to move towards voluntary tax filings and provide relief against the penal consequences of non-filing and ultimately reduce litigation.
  • Taxation on the Virtual Digital Currency: The Finance Bill, 2022 aims to impose a flat tax on the transfer of digital virtual assets at the rate of 30%. So any income that is generated from the transfer of digital virtual assets either through mining or as a gift or from any other transfer shall be taxable. No deductions can be claimed by the assessee except the cost of acquisition. The loss incurred on this income cannot be set off against any other income. The gift of digital assets is also taxable at the hands of the receiver. TDS of 1% has also been imposed on sale considerations subject to certain threshold in order to keep a track of the transactions by the government.
  • Reducing pendency in litigation: The government has introduced a policy on litigation management in the budget of 2022 with a view to reduce pendency of cases and the consequent wastage of resources in the cases of personal tax. Attempt has been made in reducing pendency of cases by avoiding repetitive appeals by the income tax department. The government observed that a lot of government’s resources are being wasted in filing of appeals which have identical issues. Therefore, the government has proposed that if a question of law, in case of an assessee, is identical to a question of law that is pending before the any higher court of law such as High Court or Supreme Court, then the department shall defer the filing of appeal in the present case till the time the pending question of law is decided by the court of law. This way the government will help in reducing repeated litigation.   
  • Reduction in the surcharge on Long Term Capital Gains (LTCG): Providing relief to the tax payers, the government has capped the rate of surcharge at 15% for all types of long term capital assets. The rate of 15% was earlier restricted to long term capital gains made on listed securities only. This move is expected to benefit the tax payers in high income tax slabs having income more than Rupees 2 crores every year, having income in long term capital assets and also those investors who have made investments in equity shares of start-ups. This will reduce the tax burden of the investors making investments in start-ups and help the start-ups to flourish in India.
  • Personal Tax relief for the parents and guardians of person with disabilities:  Currently, under section 80DD, a resident individual or an HUF can claim deductions on the amount under a scheme issued either by LIC or any other insurer and the scheme provides for payment in lumpsum or of annuity to the dependant in case of the death of the subscriber i.e. parent or the guardian. The proposed changes try to remove this hardship faced by the dependant and allow deductions during the lifetime of the parents or guardians if they have attained the age of 60 years.  
  • Exemptions in Personal taxes on amounts received as Covid aid: Following are the exemptions on personal taxes on the amounts received by the assessee for Covid medical treatment. These proposed amendments will be amended in section 17(2) of the Income tax Act[1]:
  1. Rupees 10 lakhs can be exempted for assistance received from any person received for medical treatment or received as a favour on the death of a person.
  2. There is no limit on exemption in relation to the amount paid by the employer for medical treatment or ex gratia for the deceased.
  3. It must be noted that such amount must have been received within a period of 12 months to be able to qualify for the above exemptions.
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 While the expectations of huge tax reliefs on personal taxes are not met in the Union Budget of 2022, it can be said that the budget has provided tax stability to the tax payers and encouraged to make voluntary compliances. This is reflected in providing the taxpayers option to file an updated return to the taxpayer, taxes on digital virtual currency, policy of litigation management, reduction in surcharge on LTCG on all long term capital assets, tax relief under 80DD for parents or guardians of persons with disabilities and exemptions on amounts received as aid for medical treatment against Covid.

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