India's Union Budget 2022

This webinar covers the highlights of Union Budget 2022 and insights from the critical announcement.

A snapshot of India’s economic indicators

• The GDP growth is estimated at 8-8.5% for FY 22-23, while Finance Minister Nirmala Sitharaman has stated a conservative 11.1% as the projected rate.
• An overall target to reduce fiscal deficit to 4-4.5% by 2025-26 was stated, while at present we have it at 6.4%.
• Net USD 24.4 billion worth of FDI was collected, a decrease of 30% from the previous year.
• The government put INR 7.5 trillion as CAPEX expenditure in FY 22-23 -which is 2.9% of GDP.

Key policies announced for India’s growth story

• Additional PLI worth INR 19,500 crore is allocated for installing 280 gigahertz of capacity by 2030
• Easing business insolvency with Center for Processing Accelerated Corporate Exit (CPACE) within 6 months.
• Launch announcement of digital rupee with Central Bank Digital Currency (CBDC) to make currency management easy.
• More than 68% of the CAPEX is allocated for the defense industry
• Chip enabled E-Passport
• Support to battery swapping to propel EV adoption

How does the budget impact direct taxation?

The budget affects personal taxation as follows:

• No changes on the individual taxation for housing loans or salaried employees.
• An effort to align Cooperative society taxes with corporations is made by reducing surcharge from 12.5 to 7%, and Alternate Minimum Tax from 18.5% to 15%.
• For HNIs, a surcharge on long-term capital gains is now restricted to 15% for all asset classes.
• COVID-19 related exemptions are codified in the budget where corporate relief is exempted from taxes, while if received from other means, up to INR 1 million is exempted.

The budget affects corporate taxation as follows:

• No change in corporate tax rates
• To align with normal shareholder taxes, any dividend received from foreign subsidiary will be taxed at the corporate tax rate as applicable, and not at 15%, from 1 April 2022. This could result in Forex loss for India.
• An extension on condition for commencement for newly set up manufacturing company is given till March 2023. Additional clarifications regarding incidental income, after-sales service income, claim period, etc. are required.
• Period to claim exemptions for startups extended till March 2023.

The budget affects business reorganization as follows:

• When merger assessment or proceedings are carried out on a presidential entity, it would be deemed to have been made on the successor entity. This was done so that nobody could take a technical argument of non-existence of that entity and do away with the tax liability on any additions made during the assessment proceedings.
• Also, provisions to file revised returns are made available post-merger.
• Any goodwill reduction done from the block has to be considered as a sale.
• Slump transfer definition is aligned with intent to include the word ‘sale.’

The budget has rationalized expense deduction as follows:

• A retrospective clarification where surcharge and cess are no more tax-deductible was announced.
• Under Section 14A, disallowance is applicable irrespective of exempt income
• Conversion of interest liability into debentures is now not constructive payment for section 43B allowance. Any conversion which results in postponement of liability will not get a deduction.
• Claiming a deduction for expenditures across payment of any offense or penalty under any law in India or abroad is prohibited. The amendment language is clarificatory, but the applicability is prospective.

The budget affects withholding taxes as follows:

• 10% withholding tax announced on corporate gift receivables
• Transfer of immovable property taxed at 1% of transfer or stamp duty value, whichever is higher
• Period for non-filing of tax returns reduced to 1 year
• For grossed-up cases for non-residents, an appeal can be registered with the accessing officer within 30 days of tax payment, with the officer having a time limit of 6 months to pass an order.

Miscellaneous key changes:

• One can update filed tax returns exclusively to report an increase in income to pay additional taxes of up to 25-50% plus interest.
• Changes in litigation procedures.
• Bonus and dividend stripping extended to all securities.
• Changes in compliances related to a charitable trust.

Effect on indirect taxation due to budget

“Start looking at all your returns, triangulations, accounting systems and automate your compliances overall to bring these changes under the bracket so that it helps you your Input Tax Credits.”

- Mr. Sanjay A Chhabria | Director - Indirect Tax at Nexdigm

How budget impacts the Goods and Service tax:

• Extension in dates and filings to fix any tax issues, GST credit notes, etc.
• GSTR-1 for the current month cannot be filed unless it’s filed for the previous month.
• Sanctions on utilization of ITC for payment of taxes.
• Imposition of late fee on delayed TCS return filing.
• Businesses need to perform vendor compliance to ensure no credit denials.
• Removal of redundant policies across filing, restrictions, communication of credit, etc.

How the budget impacts customs:

• Procedural changes to empower custom officers across revenues, audit, etc.
• Measures put in place to digitize and standardize procedures via forms, portal, etc.
• Phasing out of tariff rates of 350+ goods to support ‘Make in India.’
• Development of enterprise hubs via reforms in SEZ laws.

The budget is focused on infrastructure and local manufacturing via MSMEs, startups, education, etc. It also works towards streamlining processes while improving the ease of doing business.