On 1 February 2022, the Finance Minister (‘FM’) unveiled a progressive Budget that laid the blueprint for growth of the Indian economy over the foreseeable future. The 90 minutes budget speech was shorter than usual, but it packed quite a punch. The FM was quite clear about her intentions of steering India towards sustainable and inclusive development by providing a strong support to several sectors of the economy and a special focus to emerging sectors like solar power and Electric Vehicles infrastructure. This Budget also sets its clear focus on strengthening the digital infrastructure by leveraging technology across areas such as health ecosystem, education, skilling, financial services, and compliance.
The first part of the Budget speech dealt with various important policy announcements. To begin with, the FM provided a much-needed boost to infrastructure sector by announcing a significant capex outlay for infrastructure. The proposal to introduce digital currency, using blockchain technology, will give an impetus to the digital banking sector. All eyes are now on RBI to throw more light on the road map for its implementation. In a move to boost exports, the extant SEZ Act will be replaced with a new legislation that will apply to industrial enclaves. Opening of doors to overseas universities and setting up of an International Arbitration center in the GIFT City are very welcome measures. The FM also introduced a few proposals to provide succor to the rural and agri-economy.
In the second part of the Budget speech, the FM announced some important changes on the tax front. She began by showing her gratitude to the honest taxpayers. While there has been no relaxation of personal tax slabs/ rates or deductions/ incentives available to individuals, the Budget has done well to limit the surcharge on long term capital gains tax in case of all assets at 15 per cent. Given that the startup ecosystem has emerged as the growth driver for the country, in order to provide a boost to start-ups, the eligibility for claiming tax holiday is proposed to be extended by one more year. Domestic companies engaged in manufacturing activities are currently entitled to lower income tax rate of 15% if they commence manufacturing activities in newly setup companies by 31 March 2023. By giving due consideration to the difficulties faced by taxpayers on account of the COVID pandemic, the FM has proposed to extend the deadline for setting up manufacturing operations by one year, to March 2024.
There was a lot of uncertainty surrounding the taxation of digital assets in India. The FM laid to rest the conundrum around taxation of virtual digital assets (VDA) by introducing specific taxation policy thereon. It is proposed that the gains arising from transfer of VDA shall be taxed at 30 per cent. In the computation of such gains, no deduction for any expenses (other than cost of acquisition of VDA) or set-off/carry forward of losses shall be allowed. Further, it is also proposed to introduce TDS at the rate of 1 per cent on consideration for transfer of such VDA to residents.
The taxpayers are now provided with an option to file updated/ fresh tax return within two years from the end of the relevant assessment year by paying additional taxes. So as to demystify some of the controversies, the FM clarified that cess or surcharge on income tax shall be considered as a non-deductible expenditure while computing taxable income. It has also been clarified that any expenditure incurred to earn exempt income shall be disallowable, irrespective of whether the exempt income is actually earned or not during the year. With a view to reduce litigation, a new Tax Litigation management scheme is introduced. Under this scheme, cases where a question of law in the case of a taxpayer is identical to the one pending in High Court or Supreme Court in any other case, the filing of appeal by the Tax Department in the case of the taxpayer shall be deferred till such question of law is decided by the Court. With a view to curb tax avoidance practices, additional firepower has been given to the Tax Department by expanding the scope of section 68 (dealing with unexplained cash credit) and section 148 (dealing with reassessment of income).
Directionally, it is a pragmatic budget aimed at pump priming the economy, ramping up Government expenditure and creating the right ecosystem for putting the Indian economy back on a high growth trajectory, in line with ambition of India fast forwarding towards becoming a USD 5 trillion economy.