Decoding India's Union Budget 2022-23

In this webinar, we discuss key takeaways and implications from the Union Budget 2022-23

How has India fared in its economic indicators?

“This budget is not populist. It hasn't tried to spend its way to play to the galleries and it has not been irresponsible by throwing money at the problem.”

- Dr. Sachidanand Shukla, Chief Economist, Mahindra Group

Finance Minister Ms. Nirmala Sitharaman in her speech gave some numbers regarding India’s economic story as follows:

• India has recorded the highest GDP growth rate of 9.2% among all large economies With a real GDP growth rate at 8-8.5% for 2022-23, FM has shared a conservative 11.1% as the projected rate
• FM aims to reduce fiscal deficit to 4-4.5% by 2025-26, while at present, we have slipped from 6.4% which was budgeted to 6.9%
• 30% lower FDI inflow of net USD 24.4 billion
• CAPEX expenditure is budgeted at INR 7.5 trillion in FY 22-23, which is 24.3% higher than revised estimates

Effect on direct taxation due to budget

• No changes on the personal individual taxes, while COVID-19 related medical expenses remain tax-exempt without limit.
• Surcharge on LTGC is now restricted to 15% for all asset classes.
• Co-operative society taxation was aligned with corporate tax rates. The surcharge is reduced from 12.5 to 7%, while Alternate Minimum Tax is reduced from 18.5% to 15%.
• Money received as help for COVID-19 expenses are not taxable if received from an employer, while if received from other means like crowdfunding, up to INR 1 million is exempted.

The budget affects corporate taxation as follows:

• No change in corporate tax rates
• Concessional tax rate of 15% on the foreign dividends is withdrawn from 1 April 2022, to align with dividend taxation in India. The dividend would be taxed at the corporate tax rates.
• Condition for commencement for manufacturing is extended till March 2023, but interpretational issues remain unclarified.
• Condition for the period of incorporation extended till March 2023.

There are no changes to the last year’s taxation policy of goodwill slum sale reorganizations still clarifications across slump transfer definition, what happens during the time lag between filing and approval, etc. was provided.

The budget affects expense deduction as follows:

• Surcharge and cess are no more taxable, but no clarification on taxpayers who claimed cess earlier have to revise tax returns.
• Conversion of interest liability into debentures is now not constructive payment for section 43B allowance unless paid.
• Expenditures across the payment of any offense for compounding of an offense or providing benefit to a person in violation under any law in India or abroad is disallowed for claiming any deduction.

The budget affects the taxation of virtual digital assets, including NFTs. Open areas that require clarifications include arriving at the fair value of gifting, TDS compliances for crypto exchanges, and the legality of crypto.

Tax incentives for IFSC with tax exemption extended across:

• Angel tax to CAT-I and CAT-II
• Transfer of ship
• Income received from portfolio management services in IFSC concerning overseas portfolio

The budget affects withholding taxes as follows:

• A new 10% withholding tax is introduced with a per annum threshold of INR 20,000/-to stop tax by gift receivers of corporate gifts.
• Change in the refund process for grossed-up cases, where one can appeal to accessing officer within 30 days of tax payment.

Other changes whose details can be viewed in the webinar include:

• A new provision for filing updated tax returns with additional tax within 3 years is introduced
• Key changes in litigation procedures
• Changes in compliances related to a charitable trust
• Bonus and dividend stripping apply equally to REITs, equity shares, and AIF units

Effect on indirect taxation due to budget

• Revision in timelines across issuance of GST credit notes, due dates, filing by non-residents, etc.
• Legislative changes with a theme of better compliances mechanism to include complete ecosystem and ensure regularity in filing
• Restriction on utilization of credit to tackle credit frauds and misuse
• Non-compliances by the vendors would restrict your credit, impacting cashflows
• Removal of redundant provisions
• Amendment of customs rules 2017 for simplification, digitization, and automation to induce transparency
• Increase in basic custom duties while introducing PLI schemes to promote manufacturing in India
• In partnership with states, revamping SEZ laws, development of enterprise and service hubs to be done
• To encourage blended fuels, additional exercise duty of INR 2 per liter on unblended
• Petrol and diesel will be effective

You can find the details of these themes by watching the webinar.

In the end, this budget has tilted towards infrastructure investments with a strong focus on lifting growth both in the near term and more so in the medium term.