Key Amendments under tax proposed in the Finance Bill, 2022-23

The Finance Bill, 2022 has been introduced in the Lok Sabha on 1st February, 2022 and has proposed various amendments under Direct and Indirect taxes.

A. Key changes proposed to be brought in vide Finance Bill, 2022 under the Income Tax Act, 1961:

Deductions from Income or Profit from Business or Profession

No deduction for constructive / deferral interest payments & converted liabilities

• Section 43B of the Act provides for certain deductions to be allowed only on actual payment including interest payable on loan or borrowing from specified financial institution/NBFC/scheduled bank or a co-operative bank.
• Various Courts/Tribunals held that even in case interest is not actually paid but converted into another loan /advance or debenture to be construed payment or interest liability thus allowing deduction for such interest so converted into loan/debenture.
• Conversion of interest payable under Section 43B into debenture or any other instrument by which liability to pay is deferred to future date, shall not be deemed to have been actually paid with effect from April 1, 2022.

No deduction for expenditure on exempt income even in years there is no exempt income

• Section 14A of the Act provides that no deduction shall be allowed in respect of expenditure incurred in relation to exempt income.
• Rule 8D of the Income Tax Rules, 1962 provides for disallowance of the expenditure even where taxpayer in a particular year has not earned any exempt income. However, some courts have taken a view that if there is no exempt income during a year, no disallowance can be made for that year.
• An Explanation to section 14A is proposed to be inserted to clarify that these provisions shall apply and shall be deemed to have always applied in a case where exempt income has not accrued or arisen or has not been received during the previous year relevant to an assessment year and the expenditure has been incurred during the said previous year in relation to such exempt income.

No deduction for expenditure incurred by an assessee for any purpose which is an offence, or which is prohibited by law
An explanation has been inserted in Section 37 to clarify that the expression “expenditure incurred by an assessee for any purpose which is an offence, or which is prohibited by law” shall include and shall be deemed to have always included the expenditure incurred by an assessee –
a) For any purpose which is an offence under, or which is prohibited by, any law for the time being in force, in India or outside India.
b) To provide any benefit or perquisite, in whatever form, to a person, whether or not carrying on a business or exercising a profession, and acceptance of such benefit or perquisite by such person is in violation of any law or rule or regulation or guideline, as the case may be, for the time being in force, governing the conduct of such person; or
c) To compound an offence under any law for the time being in force, in India or outside India.
This amendment will take effect from 1st April, 2022.
No deduction in respect of Surcharge & Cess on Income Tax

• Section 40 provides that any sum paid on account of any rate or tax levied on the profits or gains of any business or profession or assessed at a proportion of, or otherwise on the basis of, any such profits or gains shall not be allowed as deduction from income.
• Certain taxpayers have been claiming deduction on account of ‘cess’ or ‘surcharge’ under section 40 of the Act claiming that ‘cess’ has not been specifically mentioned in Section 40 and the same view has been upheld by some Judiciaries.
• An Explanation retrospectively in the Act itself to clarify that for the above purposes, the term “tax” includes and shall be deemed to have always included any surcharge or cess.
Tax Relaxation to Manufacturing Companies (Section 115 BAB)
• The last date for commencement of manufacturing or production for new domestic manufacturing companies exercising the option for concessional tax of 15% has been extended till 31st March, 2024.

Withholding Tax Provisions
Tax Deduction / Collection at Source (206AB & 206CCA)
In case the person who has not filed return of income for the preceding financial year and the amount of tax collected and deducted at source is Rs. 50,000/- or more for said year and the due date has expired, tax is to be deducted or collected, as the case may be, at higher rate prescribed.
TDS on Payment on transfer of certain immovable property other than agricultural land (194 -IA)
Presently, in case of transfer of an immovable property (other than agricultural land), tax is to be deducted at 1% of the sum paid or credited provided the consideration is INR 50 lacs or more. It is proposed to deduct tax at higher the sum paid or credited or the stamp duty value (SDV) of such property,
Refund for TDS deducted (Insertion of New Section 239A)
Where under an agreement /arrangement, tax deductable on any income, other than interest, under Section 195 is to be borne by the person by whom the income is payable and such person having paid such tax to the credit of Central Government claims that no tax was required to be deducted on such income may within period of 30 days from the date of payment of such tax, file an application before the AO for refund of such tax. Order is to be passed within 6 months from the end of the month in which application is received.
TDS on transfer of Virtual Digital Asset (194S)
A new withholding tax provision has been proposed to be inserted vide Section 194-S – “Payment on transfer of virtual digital asset.” to provide that –

a) TDS to applicable at a rate of 1 percent on the consideration payable to resident by specified person in excess of INR 50,000 and for non-specified person in excess of INR 10,000. Amendment will come into effect from July 1, 2022.
b) Specified persons includes (i)Individuals/HUF whose total sales, gross receipts or turnover from the business carried on by him or profession exercised by him does not exceed one crore rupees in case of business or fifty lakh rupees in case of profession, during the financial year immediately preceding the financial year in which such virtual digital asset is transferred (ii) being an individual or a Hindu undivided family, not having any income under the head “Profits and gains of business or profession.

TDS to be deducted on benefits and perquisites (Section 194R)

• Person responsible for providing benefit or perquisite to residents whether convertible into money or not arising from business or the exercise of profession by such resident shall before providing such benefit or perquisite shall deduct tax at a rate of 10% of the value or aggregate of value of such benefit or perquisite.
• Where benefit is in kind or partly in kind, tax is to be paid before releasing such benefit.
• This provision shall not apply in case the aggregate value of such benefits/ perquisites does not exceed INR 20,000/- or to Individuals/HUF’s whose sales, gross receipts or turnover does not exceed INR 1 crore or INR 50 lacs in case of business or profession, respectively in the preceding financial year.
No set off of losses consequent to search, requisition and survey. (new section 79A.)
In cases where consequent to a search initiated or a requisition made or a survey conducted, the total income of any previous year of an assessee includes any undisclosed income, no set off of any loss, whether brought forward or otherwise, or unabsorbed depreciation shall be allowed, against such undisclosed income in computing his total income for such previous year.
Reduction in Litigation

Litigation management for issues pending before High court / supreme court. Earlier Section 158 AA provided for deferral of appeal by income tax department, if an identical issue is pending before Supreme court till final disposal of such appeal by supreme court ( subject to concurrence of the assessee about question of law being identical. Section 158 AA is now proposed to be replaced by Section 158AB, expanding the scope to even pending before High court/Supreme court. This Section shall be applicable from April 1, 2022.

Taxability on Cash Credits
1) Any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year
2) In case, where the sum so credited consists of loan or borrowing or any such amount, by whatever name called, any explanation offered by such assessee shall be deemed to be not satisfactory, unless—
(a) the person in whose name such credit is recorded in the books of such assessee also offers an explanation about the nature and source of such sum so credited; and
(b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory:

Introduction of Updated Return

1. Section 139(8A) has been proposed to be inserted to introduce Updated Return subject to payment of additional tax liability. Taxpayers can file an updated return of income whether a return was previously filed or not ( optional). Conditions for offering additional income and payment of additional tax & fee payable ( computed on tax including surcharge, cess & interest due arising on additional income) under Section 140B –
– 25% if updated return is filed within 12 months from the end of relevant assessment year
– 50% if updated return is filed beyond 12 months from the end of relevant assessment year but before completion of 24 months from the end of relevant financial year
2. Cases which are in completion of assessment/ reassessment or re-computation/ revision of income, Cases falling under Prevention of money laundering Act, 2022, Benami property, Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976 , black money undisclosed assets are non-qualifying cases for this updated return.

Withdrawal of Taxation of dividends earned from Foreign Company by Indian Company (Amendment in Section 115 BBD)

The 15% concessional tax rates on foreign source dividend income earned has been withdrawn with effect from April 1, 2022. This amended has been made in order to bring parity on taxation of Indian- sourced dividends and foreign source dividends.
Interest payable on Consequences of failure to deduct or pay as per Order (Section 201)
The interest shall be paid by the person in accordance with such order here an order is made by the Assessing Officer for the default by the person who does not deduct, or does not pay, or after so deducting fails to pay, the whole or any part of the tax.
Insertion of definition of Virtual digital asset & its taxability

1. A definition of “virtual digital asset” has been inserted. Virtual assets mean –
a) any information or code or number or token (not being Indian currency or foreign currency), generated through cryptographic means or otherwise, by whatever name called, providing a digital representation of value exchanged with or without consideration, with the promise or representation of having inherent value, or functions as a store of value or a unit of account including its use in any financial transaction or investment, but not limited to investment scheme; and can be transferred, stored or traded electronically;
b) a non-fungible token or any other token of similar nature, by whatever name called;
c) any other digital asset, as the Central Government may, by notification in the Official Gazette specify.
2. Tax will be charged at the rate of 30% on income from transfer of Virtual digital assets. Amendment to be effective from 1st day of April, 2023.
3. No deduction or allowance to be allowed against income except cost of acquisition.
4. No setoff of any loss arising from transfer of virtual digital asset to be allowed against any other heads of income, No carry forward of losses to subsequent assessment years. Losses can be setoff only against current year gains from transfer of virtual assets.

Slump Sale
Definition of slum sale was previously revised to include all forms of transfer under slum sale is now proposed to be amended to give effect to slum sale provisions by Finance Act, 2021. The definition is now being amended to provide that “slump sale” means the transfer of one or more undertaking, by any means, for a lump sum consideration without values being assigned to the individual assets and liabilities in such transfer.

Exemptions and Deductions from Total Income

Proposed changes in availment of Exemptions

The Prescribed authority has been prescribed i.e. Principal Commissioner or Commissioner for certain clauses under Section 10(23C) for the following –

a) any other fund or institution established for charitable purposes which may be approved by the prescribed authority, having regard to the objects of the fund or institution and its importance throughout India or throughout any State or States; or
b) any trust (including any other legal obligation) or institution wholly for public religious purposes or wholly for public religious and charitable purposes, which may be approved by the prescribed authority, having regard to the manner in which the affairs of the trust or institution are administered and supervised for ensuring that the income accruing thereto is properly applied for the objects thereof;
c) any university or other educational institution existing solely for educational purposes and not for purposes of profit, and which may be approved by the prescribed authority.
d) any hospital or other institution for the reception and treatment of persons suffering from illness or mental defectiveness or for the reception and treatment of persons during convalescence or of persons requiring medical attention or rehabilitation, existing solely for philanthropic purposes and not for purposes of profit, and which may be approved by the prescribed authority.

Items not to be included in Salary of Employee (Section 17)

Any sum paid by the employer in respect of any expenditure actually incurred by the employee on his medical treatment or treatment of any member of his family in respect of any illness relating to COVID-19 subject to such conditions as the Central Government may, by notification in the Official Gazette, specify in this behalf shall not form part of salary with effect from the 1st day of April, 2020.
Exemption of amount received for medical treatment and on account of death due to COVID-19 (Section 56)
Following sum of money received by individual/ member of family of deceased person shall not be income of person for calculation of taxable income –

a) Sum of money received by Individual from any person where expenditure actually incurred by him on his medical treatment or treatment of any member of his family, in respect of any illness related to COVID-19 subject to such conditions, as may be notified by the Central Government
b) sum of money received by a member of the family of a deceased person, from the employer of the deceased person (without limit), or from any other person or persons to the extent that –
i. Such sum or aggregate of such sums does not exceed ten lakh rupees, where the cause of death of such person is illness relating to COVID-19
ii. The cause of death of such person is illness relating to COVID-19
iii. Payment is, received within twelve months from the date of death of such person, and subject to such other conditions, as may be notified by the Central Government in this behalf

These amendments will take effect retrospectively from 1st April, 2020 and will accordingly apply in relation to the assessment year 2020-21 and subsequent assessment years
Deduction in respect of contribution to pension scheme of Central Government & state government
Deduction under Section 80 CCD shall now be available for contribution made to pension scheme of Central Government & state government. This amendmend shall be deemed to have been substituted with effect from the 1st day of April, 2020.
Other Key Amendments
No direction to be issued by Transfer Pricing Officer
It has been Provided that no direction shall be issued by Transfer Pricing Officer ( under Section 92CA) after the 31st day of March, 2024.
Special provisions for payment of tax by Cooperative Societies (Section 115JC)
In case the regular income-tax payable for a previous year by a Cooperative Society is less than the alternate minimum tax payable for such previous year, the adjusted total income shall be deemed to be the total income of Cooperative Society for such previous year and he shall be liable to pay income-tax on such total income at the rate of 15% instead of 18.5%.

B. Key changes proposed to be brought in vide Finance Bill, 2022 under the Indirect Taxes are –
Central Goods and Service Tax Act, 2017

Amendments of ITC (Input tax credit) related provisions

1. Section 41 is being substituted as to do away with the concept of “claim” of eligible input tax credit on a provisional basis and to provide for self-assessed input tax credit subject to such conditions and restrictions as may be prescribed. This is in alignment to changes in GST returns where credit is to be availed basis matching with GSTR-2B on one to one basis.
2. Registered person shall not be entitled to take input tax credit in respect of any invoice or debit note for supply of goods or services or both after 30th day of November following the end of financial year to which such invoice or debit note pertains or furnishing of the relevant annual return, whichever is earlier. Currently, Registered person was not entitled to take input tax credit in respect of any invoice or debit note for supply of goods or services or both after the due date of furnishing of the GSTR-3B return for the month of September following the end of financial year to which such invoice or debit note pertains or furnishing of the relevant annual return, whichever is earlier.
3. Section 50 has been amended to provide that where the input tax credit has been wrongly availed and utilised, the registered person shall pay interest on such input tax credit wrongly availed and utilised, at such rate not exceeding twenty-four percent as may be notified by the Government, on the recommendations of the Council, and the interest shall be calculated, in such manner as may be prescribed. This shall come into effect from 1st day of July, 2017. Earlier, taxable person who makes an undue or excess claim of input tax credit or undue or excess reduction in output tax liability was required to pay interest at such rate not exceeding twenty-four per cent on such undue or excess claim or on such undue or excess reduction, as the case may be. This amendment has bought clarity that the registered person shall be required to pay interest at such rate not exceeding twenty-four percent only if has wrongly availed and utilised the input tax credit.

Electronic Credit ledger/ Electronic Cash ledger

1. Section 49 has been proposed to be amended to also provide for –
(a) The “restrictions” for utilising the amount available in the electronic credit ledger for making any payment towards tax, interest, penalty, fees or any other amount payable under the provisions of this Act or the rules made thereunder. Currently, the amount available in the electronic cash ledger may be used for making any payment towards tax, interest, penalty, fees or any other amount payable under the provisions of this Act or the rules made thereunder in such manner and subject to such conditions and within such time as may be prescribed.
(b) The maximum proportion of output tax liability which may be discharged through the electronic credit ledger may be specified on the recommendations of the Council for by a registered person or a class of registered persons as may be prescribed.
2. The transfer of amount available in electronic cash ledger under the CGST Act of a registered person to the electronic cash ledger of a distinct person has been allowed and such transfer shall be deemed to be a refund from the electronic cash ledger under this Act. It has been further provided that no such transfer shall be allowed if the said registered person has any unpaid liability in his electronic liability register.

Cancellation of registration for following tax payers

1. Composite dealers who has not furnished the return for a financial year beyond three months from the due date of furnishing of the said return.
2. For other registered person, please note that earlier provided lapse period of filing return for continuous period of 6 months has been replaced with “for such continuous periods as may be prescribed”.

1. Other Proposed changes
2.
1. Section 39(10) has been proposed to be amended to provide that registered person shall not be allowed to file GSTR-1 of any month if the details of outward supplies for any previous months has not been furnished by him. Currently, the registered person was shall not be allowed to file GSTR-1 of any month if the return for any of the previous tax periods has not been furnished by him. This has provided clarity on the type of return which the registered person has not filed in the previous months in order to file the GSTR-1 return of any month.
2. Registered person shall not be entitled to declare the details of such credit note in the return for the month during which such credit note has been issued in relation to a supply of goods or services or both after 30th day of November following the end of financial year to which such credit note pertains or furnishing of the relevant annual return, whichever is earlier. Currently, Registered person was not entitled to declare the details of such credit note in the return for the month during which such credit note has been issued in relation to a supply of goods or services or both after September following the end of the financial year in which such supply was made, or the date of furnishing of the relevant annual return, whichever is earlier.
3. Section 39(5) has been proposed to be amended to provide that non-resident taxable person shall furnish the GSTR-5 return for a month by 13th day of the following month. Currently, GSTR-5 return for a month is required to be filed by the non-resident by 20th day of the following month.

Customs Act, 1962/ Custom Tariff Act, 1962

1. A Comprehensive Review of customs has been undertaken through a process involving crowd sourcing and inputs from various ministries. In this context about 350 exemptions are being proposed to be gradually phased out.
2. It is proposed to phase out the concessional rates in capital goods and project imports gradually and apply a moderate tariff of 7.5 per cent.
3. Certain goods has been exempted from levy of social welfare surcharge (SWS).
4. An importer or an exporter who publishes any information relating to the value or classification or quantity of goods entered for export from India, or import into India, or the details of the exporter or importer of such goods unless required so to do under any law for the time being in force, shall be punishable with imprisonment for a term which may extend to six months, or with fine which may extend to fifty thousand rupees, or with both.( under newly inserted Section 135AA). This will protect the import and export data submitted to Customs.

Source: Ministry of Finance