Union Budget 2022-23 : Key highlights

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Union Budget 2022-23 : Key highlights

Jayakumar Selvaraj

@Jayakumar

February 1, 2022

Public Policy

650

As the pandemic recedes, India’s Gross Domestic Product (GDP) is expected to grow 9.2% in the current fiscal. Overall, the budget lays a strong thrust on leveraging technology as an enabler, by announcing a range of initiatives that could make India a digital nation. The budget aims to push this momentum further by committing a significant increase in the capital expenditure, 35.4% over the current fiscal to reach 7.5 lakh crores in FY23. Importantly, the budget also attempts to lower the fiscal deficit from 6.9% in FY22 to 6.4% in FY23 – in line with the path of fiscal consolidation announced last year.

Highlights of Union Budget 2022-23:

Start-ups and Emerging Technologies

Surcharge on LTCG on any type of assets capped at 15% - Surcharge on LTCG arising on transfer of any type of assets is proposed to be capped at 15% (against the maximum surcharge rate of 37% for individuals, HUF, AOP, etc. with high income). This will provide a boost to the investors by reducing the tax rate on LTCG on any type of assets from 28.5% to 23.92% (in case of investors having total income more than INR 5 crores).
Scaling up Private Equity (PE) and Venture Capital (VC) investment - An expert committee is proposed to be set up to examine regulatory and other impediments, and also to suggest appropriate measures to scale up PE and VC investments in the country.
Faster Exits for Companies - Budget proposes to set up Centre for Processing Accelerated Corporate Exit (C-PACE) in order to facilitate and speed up voluntary winding-up of companies from the current 2-years period to less than 6 months.
Animation, Visual effects, Gaming and Comic (AVGC) promotion - Budget proposes to set up an AVGC promotion task force with all stakeholders. The task force will recommend ways to realise immense potential of the sector and to build domestic capacity for serving domestic and global demand.
Tax holiday for startups – Income tax holiday for start-ups under S. 80-IAC of Income Tax Act, 1961 (IT Act) has been extended by 1 year. Accordingly, start-ups incorporated till March 31, 2023, will be eligible to avail income tax holiday for 3 consecutive years out of 10 years from incorporation.
Startups in agriculture – Budget proposes to facilitate a fund through National Bank for Agriculture and Rural Development (NABARD) with blended capital, raised under the co-investment model. This fund will finance startups for agriculture & rural enterprise, relevant for farm produce value chain.
Drones - Budget proposes to promote use of “Kisan Drones” for crop assessment, digitisation of land records, spraying of insecticides and nutrients. The Ministry of Agriculture released additional guidelines to its “Sub-Mission on Agricultural Mechanisation” on January 17. The guidelines are to promote use of drones in agriculture. The guidelines provide grants for drone purchase or hiring to select organisations such as Farmer Producer Organisations, Krishi Vigyan Kendras, State agricultural universities, ICAR institutes etc. The scheme is available till March 31, 2023. Further, start-ups will also be promoted to facilitate ‘Drone Shakti’ through various applications and for Drone-As-A-Service (DrAAS).

Data Centers

Infrastructure status - Data Centers will be included in the harmonised list of infrastructure. This will facilitate credit availability for digital infrastructure, as the sector will now be eligible for grant of funds from institutions that specifically fund only infrastructure projects as well as from banks under their infra sector allocation. This announcement is in line with NASSCOM recommendation.

Research & Development (R&D)

Defence - Defence R&D will be opened up for industry, startups and academia with 25% of defence R&D budget earmarked for private colloboration. Private industry will be encouraged to take up design and development of military platforms and equipment in collaboration with Defence Research and Development Organisation (DRDO) and other organisations through Special Purpose Vehicle (SPV) model. An independent nodal umbrella body will be set up for meeting wide ranging testing and certification requirements.

Skilling

Introduction of skill-based programs - Government, in partnership with industry, proposes to introduce skill-based programs to promote continuous skilling avenues, sustainability, and employability. Further, National Skill Qualification Framework (NSQF) will be aligned to meet dynamic industry requirements.
Online training for skilling, reskilling and upskilling - A digital ecosystem for skilling and livelihood – the DESH-Stack e-portal, which will provide online training to skill, reskill and upskill citizens will be set up. It will also provide API-based trusted skill credentials, payment and discovery layers to find relevant jobs and entrepreneurial opportunities. This is an ambitious project that NASSCOM will support.
Skill based curriculum - Government proposes to introduce skill-based curriculum in selective ITIs across all States towards skill development.
Digital University - A Digital University will be established to provide access to students across the country for world-class quality universal education with personalised learning experience at their doorsteps.
Foreign universities in GIFT city – Foreign universities and institutions will be allowed to offer courses in FinTech, financial management, science and technology, engineering and mathematics in the GIFT city. This will facilitate availability of high-end human resources for financial services and technology. These will be free from domestic regulation except those by IFSCA.

Special Economic Zones (SEZ)

SEZ Act - Budget proposes to replace the SEZ Act with a new law to enable the states to partner in ‘Development of Enterprise and Service Hubs’. This will cover all large existing and new industrial enclaves to optimally utilise available infrastructure and enhance competitiveness of exports.
While there was no specific announcement with respect to the proposed changes to the SEZ Act, we are aware that Government is considering amending the SEZ law, that will enable SEZ units to receive payments for the services rendered to the Domestic Tariff Area (DTA) units in Indian currency. This will be in line with NASSCOM’s submission to the Government. Our ask related to eligibility of income tax benefits for the services rendered by SEZ employees while working remotely does not require an amendment to the Income tax law and can be be done by way of a clarification. This is awaited.

Banking & FinTech

Central Bank Digital Currency (CBDC) - Digital rupee/CBDC using blockchain is proposed to be launched by the Reserve Bank of India (RBI) in FY 2022-2023. This will lead to a more efficient and cheaper currency management system.
Digital Banking Units (DBU) - Scheduled commercial banks will set up 75 DBUs in 75 districts of the country, to ensure that the benefits of digital banking reach every nook and corner of the country.
Arbitration centre in GIFT city – Budget proposes to set up an International Arbitration Centre in the GIFT City for timely settlement of disputes under international jurisprudence.

Direct Taxation

Tax on Digital assets – Income derived from sale of virtual digital assets will be taxed at 30%. No deduction of any expense or set off of loss will be allowed from such income. The Budget also proposes to introduce Tax Deduction on Source (TDS) @ 1% on such income. Gift of virtual digital asset is also proposed to be taxed in the hands of the recipient
Tax rate on dividend received from foreign company- S. 115BBD providing concessional tax rate of 15% on dividend received from foreign companies has been proposed to be abolished with effect from Assessment Year (AY) 2023-24.
COVID related benefits - Any amount received for expenses incurred on treatment of COVID for self and family from employer or otherwise, sum received by family members on death of a person from any other person up to INR 10 lakhs and any sum received by family members on death of a person from the employer is not taxable.

Tax Administration

Litigation management to avoid repetitive appeals by the tax department – If a question of law in the case of a taxpayer is identical to a question of law pending in appeal before the jurisdictional High Court or the Supreme Court, filing of further appeal in such cases by the department shall be deferred till such question of law is decided by the jurisdictional High Court or the Supreme Court. This will help in reducing repeated litigation between taxpayers and the department.
Updated returns – Proposal to allow taxpayers to file an updated return within two years from the end of the relevant assessment year. An amount equal 25% or 50% as additional tax on the tax and interest due on the additional income furnished would be required to be paid Updated return cannot be filed where there is net loss or decrease in total tax liability or refund or increase in refund.
Faceless assessment scheme – Proposal for retrospective deletion of clause that made assessment invalid where procedure was not followed. Further, timeline for introducing faceless schemes for Transfer Pricing, International taxation matters, and Tribunal appeals proposed to be extended till 31 March 2024.
Extension of powers of officers - Extension of revisional powers as available with the Principal Commissioner or Commissioner under S.263 to transfer pricing cases under S. 92CA of the Act. In line with this change, inclusion of word ‘or Transfer pricing officer’ along with ‘Assessing Officer’ is proposed to be prescribed in the said Section.

Other relevant direct tax announcements

Tax incentives - Exemption allowed to for income earned by non-resident on transfer of offshore derivative instruments or over-the-counter derivatives entered with an Offshore Banking Unit of IFSC.
Clarification regarding allowability of surcharge or cess - No deduction for surcharge or cess will be allowed under S.40(a)(ii) retrospectively from AY 2005-06
Scope of S.37 expanded- Expenditure incurred for any offence under foreign law, compounding fees and expenditure incurred to provide any benefit or perquisite, acceptance of which by any other person is in violation of any law governing such person is proposed to be disallowed under S.37.
Amendments in relation to S. 206AB and 206CCA - Earlier, S.206AB and 206CCA were applicable to specified persons who have not filed their return in two previous years and the aggregate of TDS/ Tax Collection at Source (TCS) exceeds INR 50,000 in each of these two years. Now, instead of two years, the aforesaid requirement of non-filing of return and aggregate TDS/ TCS exceeding INR 50,000 has to be seen only in the immediately preceding previous year for which the time limit for furnishing the return of income has expired.

Indirect taxes

Goods and Services Tax (GST)

Proposal to amend S. 50(3) of Central Goods and Services Tax Act, 2017 (CGST Act) retrospectively to provide for interest recovery only in cases where Input Tax Credit (ITC) has been wrongly availed and utilised. Rate of interest is proposed to be capped at 18%.
Time limit for availing ITC is proposed to be extended to 30th November of next FY (instead of 30th September), thereby giving an additional time of two months for credit availment in relation to invoices for a particular financial year. Similar amendment is also proposed to allow credit notes to be raised till 30 November of next FY.
A new clause (ba) to S.16(2) of CGST Act has been proposed to be inserted to provide that ITC with respect of a supply can be availed only if such credit has not been restricted in the details communicated to the taxpayer under S.38. Effectively, only ITC appearing in GSTR-2B as available will be eligible for ITC.
Proposal to do away with the two-way communication process in return filing. Effectively, the matching concept has been removed from GSTR-2 and 3.
Proposal to extend time up to 30th November of the following FY for rectification of errors in the return furnished under S.37 of CGST Act.
Proposal to transfer cash balance in electronic cash ledger across GST registration of distinct person(s).
S. 54(1) is proposed to be amended to provide the procedure for grant of refund of balance in cash ledger. This should put an end to the dispute around TCS and TDS refund from cash ledger.
Relevant date for filing refund claims for supplies to SEZ to be determined from the date of filing of monthly returns.

Customs

Proposal to amend the definition of “proper officer” to include officers of Directorate of Revenue Intelligence (DRI), Audit and Preventive Formation in the class of officers of Customs to perform various functions under the Customs Act and the rules made thereunder. Also, clause 96 of the Finance Bill, 2022 intends to validate actions taken under the Customs Act, 1962. Effectively, this would nullify the ruling of the Supreme Court in case of Canon India which held that DRI officers are not proper officers under the Customs Act, 1962.
Procedures with respect to Advance Ruling are proposed to be rationalised to allow applicants to withdraw the application till ruling is issued. The Advance ruling to be valid for three years or till there is a change in law or facts on the basis of which the advance ruling has been pronounced, whichever is earlier.
S. 14 of Customs Act is proposed to be amended so as to empower the Central Government to make rules enabling the CBIC to specify the additional obligations of the importer in respect of a class of imported goods, whose value is not being declared correctly, the criteria of selection of such goods, and the checks, including the circumstances and manner of exercise of such checks, in respect of such goods.

Key suggestions from NASSCOM that have not been addressed in the Budget

Clarifications on availability of income tax holiday under S.10AA of Income Tax Act, 1961 in case of Work from Home (WFH) by employees of Special Economic Zones (SEZ) units.
Expansion in scope for utilisation of SEZ re-investment reserve for expenses incurred on leasing of computers/ laptops, using cloud infrastructure, as well as investment in building, infrastructure workstation, furniture.
Deferment of tax liability on Employees Stock Option Plans (ESOP) granted by all start-ups to time of sale of shares. Further, this benefit should be available to all DPIIT recognised startups, and not just eligible startups.
Long Term Capital Gains (LTCG) on sale of unlisted shares are taxed @ 20% for resident investors and 10% for non-resident investors. It is important to harmonise the tax rates for resident investors on unlisted shares issued by DPIIT recognised startups. This will provide a level playing field to domestic investors vis-à-vis foreign investors.
Reduction in safe harbour margins for services rendered by IT-BPM/ ITeS Industry.

NEXT STEPS:

NASSCOM will soon be submitting a detailed post budget memorandum highlighting concerns and recommendations to strengthen the Budget proposals. Request you to send your inputs at the earliest to tejasvi@nasscom.in and jayakumar@nasscom.in.

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