This article on ‘Critical Analysis of the Finance Bill 2022‘ was written by Amruta Patil an intern at Legal Upanishad.
Introduction
Direct taxes and indirect taxes are the two categories of taxes in India. Direct taxes are assessed on the revenue that various business entity types bring in within a fiscal year. The Income Tax Department has a variety of registered taxpayers, and each pays taxes at a particular rate. For instance, although taxpayers, a person, and a business are not taxed equally.
The year 2022 and its budget for the Financial year 2022-23 were seen to have numerous changes of some which were new additions such as that “India launching Digital currency” to that introducing the concept of “updated return”.
The following article discusses the Finance Bill’22 and the changes in its various provisions focusing on corporate taxation.
What is a finance bill?
Finance Bill or Money Bill defined under the Indian Constitution under Article 110 –
A part of the Union Budget defines the taxes, financial obligations, and changes in the existing tax structure as proposed by the finance ministry. The bill is introduced once a year with proposed changes, which becomes a Finance Act when approved.
What is a memorandum in a finance bill?
A memorandum is a document which contains the details of the proposed changes, and amendments related to the taxes which are explained in detail in the memorandum of the Finance Bill.
Finance Bill 2022 and its memorandum-
The Finance Bill’22 having been given the assent of the President on 30.03.2022 subsequently made it to the Finance Act,2022. The bill was passed with 39 amendments to be made to the taxation regime.
Critique on the Financial Bill 2022-23-
The new changes regarding various tax slabs introduced for the financial year 2022-23 come as a surprise as its memorandum, adheres to the proverb of “to err is human but to forgive is divine” which applies in scenarios allowing to correct the wrong done.
The concept of self-governance – wherein the citizens can file their taxes of the previous two years in the event of any omission in the filing of returns in the previous filing. This is to promote the filing the concept of filing updated returns by allowing citizens the freedom to file their income tax returns correctly.
Under section 139 of the IT Act, additional time is being given to entities such as 5 months to the individual assesses, 2 months to the company and so on. The above new provision advances the government’s efforts toward voluntary compliance and a reliable taxation system.
The introduction of the TDS measures of the income generated through any business or profession of the assesses which is often seen as unreported will now be tracked and recorded ensuring compliance with the IT rules.
Although the rules and laws are still in the making, there is a fair attempt made in defining Virtual Digital Assets in the Finance Bill,2022. The losses incurred on the transfer of VDA to later years may not be offset against any other income, nor may they be carried forward. Furthermore, the recipient will be taxed while receiving the gift of such assets. Payments made in connection with the transfer of VDA to Indian citizens are subject to a 1% tax withholding requirement in order to secure advance tax collection.
Another issue in the bill is regarding the cash credit and disclosure of its transaction. This requires taxpayers to research the lender and look into its revenue sources. Even though the memorandum specifies that the creditor has the extra burden of proving that the source may be sufficiently explained, this would not apply if the creditor is a well-regulated organisation, and it hasn’t been noted in the section. This modification mistakenly covers trade payables, bank borrowings, and credit card payments, which is not what was intended. Additionally, “satisfactory information” is highly subjective and may result in legal action.
Regardless of capital gains, the bill proposes capping the additional tax on long-term capital gains (LTCG) to 15%. These rates to also be applicable to the Association of Persons. The experts are of the opinion to further wait and see whether the benefits proposed in the bill are restricted to simple equity shares or are extended to all classes of long-term capital assets which will be determined with the passage of time.
Although this Financial plan focuses on the digitalization of the Indian economy, it has neglected to address a number of other important issues, such as rules on an offshore listing for Indian companies, creating a regulatory environment favourable for Special Purpose Acquisition vehicles (SPACs), lowering tax rates for the salaried and middle class, providing concessional tax rates for companies investing in green technology, etc. Additionally, taxing virtual digital assets is anticipated to have a significant influence on the cryptocurrency ecosystem, therefore it will be important to watch how the government continues to regulate these assets.
Conclusion
The road to recovery for the socio-economic scenario of India hasn’t been a cakewalk. The revolutionary policy changes include uniform policy and tax rates, a focus on renewable energy and the development of a green, clean, and climate-friendly economy, steps to reduce avoidable litigation, the introduction of the concept of “virtual digital asset” for taxation income arising from cryptocurrencies and related digital assets, steps to ease business operations, and improving tax collection and administration through technology, data analytics, and reduction.
The government has consistently shown its dedication to advancing efforts to offer a stable, dependable, and trustworthy tax system, thus the move toward a faceless system is a step in the right direction.
Reference:
- Ravi S. Raghavan(2022,Feb 12th) “India’s Budget 2022-23” https://www.livelaw.in/job-updates/indias-union-budget-it-act-finance-bill-191803
- FE Knowledge desk(2019, November 25th) “what is Finance Bill” https://www.financialexpress.com/what-is/finance-bill-meaning/1775053/
- View of the Finance Bill,2022” https://itatonline.org/digest/articles/an-overview-of-finance-bill-2022/
- Income Tax Department, GOI (2022, April 5th) https://www.incometaxindia.gov.in/Pages/i-am/tax-deductor.aspx?k=Payment%20of%20TDS
- Nitin Narang &Adarsh Rathi (2022 Feb 8th )“impact of the financial bill,2022 on transfer pricing practice in India ” https://www.taxmann.com/budget/budget-story/327/impact-of-finance-bill-2022-on-transfer-pricing-practice-in-india
- EY(2022 March 28th) “key amendments to Finance Bill,2022 at enactment stage.” https://www.ey.com/en_in/alerts-hub/2022/03/key-amendments-to-finance-bill-2022-at-enactment-stage
- Nishith Desai Associates(2022 Feb 2nd) “Indian Budget Analysis” https://www.nishithdesai.com/fileadmin/user_upload/Html/Hotline/India_Budget_Analysis_M_2022_23.htm