Unbundling India Budget 2022

Analyzing reform announcements

The Budget focuses its capital expenditure on the next phase of ease of doing business, renewable energy and Make in India. This includes:

• Realistic and conservative approach towards GDP growth pegged at 11.1%
• No huge difference in expenditure numbers
• A two-fold increase in CAPEX spending to focus on supply
• Most of the CAPEX is deployed for defense, railways, roads, housing, etc.
• Measures to boost demand via tax deductions, exemptions, introducing credit guarantees, funding, etc.
• New areas prioritized across green bonds, digital assets, digitization of banking, education, renewable energy, etc.

Key announcements for Direct Taxes

In this Budget, the government has focused on clarifications and amendments, with no changes in individual or corporate tax rates. Key changes and initiatives undertaken under direct Tax are shared as follows:

Personal taxation:

• Alignment of corporate taxes with cooperative taxes is done across surcharges and Alternate Minimum Taxes.
• LTGC surcharge is restricted to 15% for all asset classes.
• COVID-19 related tax exemptions made official via budget inclusions.

Corporate taxation:

• Foreign dividends from foreign subsidiaries aligned with corporate taxes as applicable.
• Startups to receive incorporation exemptions for 1 more year.
• Condition for commencement of new manufacturing companies extended by 1 year.

Restructuring and mergers:

• Proceedings carried out while merger appeals to be applicable on successor entity.
• New provisions enabled to allow modification of filed tax returns as per successor entity.

Expense deductions:

• Surcharge and cess are no longer taxable.
• Disallowance under Section 14A is applicable even in cases of no exempt income.
• Conversion of interest liability into debentures is not constructive payment under section 43B allowance.
• Any expense for illegal payments, whether in India or abroad, is no longer taxable.

Withholding taxes:

• Withholding tax is now applicable on the transfer of immovable properties.
• Any business-related gifting across incentives, benefits, etc., is now taxed.
• Penal on withholding tax applies to non-filing of returns, where the period is also reduced to 1 year.
• For grossed-up cases of non-residents, the applications need to be filed to an assessing officer, where the officer needs to pass an order within 6 months.

Other key announcements include:

• Taxpayers can report an increase in income, update their tax returns, and pay additional 25-50% surcharges + cess, and interests.

Key announcements for Indirect Taxes

Operational, legislative changes have been introduced in indirect taxes. Here are some key changes:

• Revision in timelines for availing GST credits, filing returns, etc. is provided
• In the GST portal, to nurture regularity - one cannot file GSTR-I returns unless the previous month is filled
• New restrictions in ITC credit utilization are introduced.
• Businesses need to ensure their vendors are GST compliant and their customers receive the credit.
• Limitations in the eligibility of credits are also introduced.

Any inaccurate compliance or misconduct can result in credit denials or ineligibility for the business and its customers.

GST facilitation measures:

• Redundant policies across two-way communication of credit, filing restrictions, etc. are removed.
• 18% interest is applicable on incorrect usage of ITC and not availing the same.

Legislative changes in customs:

• Empowerment of Customs Officers to recover customs duties that weren't levied
• Allowing the Board, Principal Commissioner, and Commissioner of Customs to assign functions to Customs Officers.
• Introduction of empowerment of concurrent Customs Officers.
• For all advance rulings - a shelf life of 3 years is imposed. Any redundant definitions are also removed.

Tariff changes:

• 350+ items face tariff changes to promote local manufacturing under Make In India.

You can view the webinar to understand further these provisions in detail and how as a business or individual, you can navigate and benefit from the Budget-2022.