India's Post Budget Session on Service Exports

This webinar discusses the Budget-2022 across tax reliefs, clarifications, incentives, and amendments. It also explores how it affects the overall macroeconomics of India.

Key policy announcements

• CAPEX expenditure is budgeted at INR 7.5 trillion in FY 2022-23.
• The fiscal deficit is projected at 6.9%, with 6.4% targeted for next year. The Finance Minister aims to reduce the fiscal deficit to 4-4.5% by 2025-26.
• PLI scheme for solar manufacturing and installation to achieve 280 Gigawatt solar capacity by 2030.
• Smoother corporate exists from 2 years to 6 months in terms of approvals with cross-border insolvency law.

How the budget affects direct taxation?

• Alignment of Cooperative society taxes with corporates is now applicable. While surcharge is reduced from 12.5 to 7%, and Alternate Minimum Tax is reduced from 18.5% to 15%.
• Surcharge on LTGC is now restricted to 15% for all asset classes.
• Monetary COVID-19 relief by corporate to employer 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
• From April 2022, any dividend received from foreign subsidiary will be taxed at the normal corporate tax rate as applicable to your company and not at 15%.
• Extension on condition for commencement for manufacturing till March 2023, but clarification in case of incidental income, trading, etc., is required.
• Condition for the period of incorporation for startups extended till March 2023.

The budget affects mergers as follows:

Clarifications on the time lag between the filing of the merger application and receiving approval are provided - now the assessment would be done on the successor entity and users can file a modified return once the merger order is accepted.

The budget affects expense deduction as follows:

• Surcharge and cess are no more tax-deductible
• Section 14A disallowance will be applicable even if there is no exempt income during the financial year, which was previously allowed.
• Conversion of interest liability into debentures is now not constructive payment for section 43B allowance.
• Expenditures across the payment of any offense or penalty under any law in India or abroad are disallowed for claiming any deduction. Clarity on amendment wordings is required, where it appears to be a clarificatory amendment, but the provision says that it is applicable from April 2022.

The budget affects withholding taxes as follows:

• A 10% withholding tax is now applicable to track and stop tax withholding by corporate gift receivers in the form of benefits, incentives, cash, etc.
• Withholding tax on the transfer of immovable property as 1% of transfer or stamp duty value, whichever is higher.
• For grossed-up cases, one can appeal to accessing officer within 30 days of tax payment.

Miscellaneous key changes:

• New provision for filing updated tax returns only for cases to report an increase in income to pay additional taxes plus interest.
• Changes in litigation procedures
• Bonus and dividend stripping extended to all securities
• Changes in compliances related to a charitable trust

The budget impacts the Goods and Service tax as follows:

• Extension in dates and filings
• Stringent compliance mechanism to ensure regularity in filing
• Restriction on utilization of credit to tackle misuse
• Doing business with non-compliant or defaulting vendors would restrict your and your customer’s credit
• One can claim a refund on interest on wrongful availment and utilization of credit

What is missing in the budget?

• No GST Applette tribunal has led to refund rejections, especially for exporters.
• No clarification on the qualification of ‘intermediary’ for outsourced activities.
• An E-Wallet system to manage cash flow was introduced in April 2018, but no provisions for its implementation have been made.

Impact on Customs:

• Legislative changes in customs like the validity of advance ruling is up to 3 years, obligations by CBIC to check undervaluation, etc.
• Amendment of customs rules 2017 to digitize for transparency.
• Reduction in custom duties for raw materials, while it’s increased for finished goods

Sector-specific proposals:

• SEZ laws facilitate further development of enterprise and service hubs via automation.
• Digital University, loan guarantee schemes for the tourism sector, and National Tele mental health program are introduced
• Focus on local manufacturing and purchase in the defense sector

You can view the webinar to understand these themes and insights further.