1. Union Budget 2022 overview

2. Income tax related Budget 2022 expectations

a. Clarity on cryptocurrency taxation :

While the government is waiting on the cryptocurrency bill, much-needed clarity is expected on its taxation in the upcoming Union Budget 2022. There are various concerns about the taxation of crypto, its classification, applicable tax rates, TDS/TCS and GST implications on the sale and purchase of cryptocurrencies, etc., which we are hoping will be clarified during the budget session.

b. New tax regime:

The Finance Ministry may revise the personal income tax slab in this year’s Budget. Many experts believe that the two tax regimes still confuse the common man. The government may consider increasing the highest tax slab to Rs.20 lakh from Rs.15 lakh or allow certain deductions to make the new regime more enticing. Also, for businesses, removing the current limitation of ‘once in a Lifetime Migration’ from one tax regime to another is expected to offer them better flexibility in choosing different tax regimes.

c. Section 80C and Section 80D limits

Section 80C and Section 80D limits are certainly expected to be increased this year as they have been the same for so long. Also, high direct tax collection during this fiscal year may help with the upward revision of these limits. A higher deduction under Section 80C may be permitted for the Equity-Linked Savings Scheme (ELSS), or a separate limit can be defined to encourage more mutual fund investments in India. Further, a special COVID expense related deduction may be allowed under Section 80D or 80DDB to provide tax relief for COVID-19 patients and their families.

d. Standard Deduction and Work from Home Allowance:

Budget 2021 did not provide any major relief to the salaried class. Budget 2022 may introduce tax-free work from home allowances for salaried employees. Allowing deductions for such expenses will raise the take-home salary, ultimately creating demand for goods and services in the country. With many companies considering a hybrid working culture even after the pandemic, the income tax department is expected to provide some tax-exemptions for expenditures incurred while working from home.

Also, no deduction is available for expenses incurred for personal growth like taking a course, improving skills, etc., from the salary income. These expenses are usually a part of working life, and the government should offer tax benefits for such expenditures. Due to the high direct tax collection this fiscal year, there may be a scope to increase tax deduction limits. For instance, the standard deduction available to those with salary income may be raised to Rs.1 lakh. This may be adjusted for inflation every year.

e. Deduction for COVID treatment

An additional COVID expense related deduction is expected under Section 80D or 80DDB to provide tax relief for COVID-19 patients and their families. We all witnessed that COVID not only impacted the physical health of the families, but it also greatly impacted the financial health of the families due to medications and hospitalisations expenses. Many state governments and other institutions came forward to offer assistance to the families in these times. The Finance Ministry may consider allowing the out of pocket expenses on COVID treatment to be allowed as a deduction.

3. GST RELATED BUDGET 2022 EXPECTATIONS

a. Reducing the e-invoicing applicability limits.

The government is expected to announce a reduction in the e-invoicing threshold turnover limit to apply below Rs.50 crore, maybe above Rs 25 crore. It brings more transparency in recording sales, reduces errors, improves compliance, makes businesses more agile and weeds out regulatory delays in supply chain operations. Reducing the limits will benefit the newly onboarded small or medium businesses and the Large enterprises who partner with these small and medium businesses. It will ensure they claim accurate and genuine ITC or input tax credits. It will ensure that all B2B invoices are timely uploaded to GSTN via the IRP.
Moreover, it will allow small and medium businesses to leverage invoice discounting as an alternate, safe and faster financing option, thus increasing the flow of working capital to businesses. The initial cost will be incurred for this system setup and testing. The government should provide sufficient time and the necessary resources before launching e-invoicing for small taxpayers above the expected Rs.25 crore limit.

b. Introducing a reverse charge based mechanism for pushing GST compliance

The government should introduce a new reverse charge mechanism to improve overall GST compliance, boost revenue collection, and ultimately expand the taxpayer base. Under this, large taxpayers with turnover exceeding Rs.100 crore or Rs.500 crore will pay the GST due to their small vendors (say, vendors with turnover less than Rs.5 crore) directly to the government. The tax compliance burden for small businesses would be drastically reduced. They can be mandated to file a quarterly or even half-yearly statement declaring their revenues and paying the balance tax amount if any. Large enterprises already have most of their documentation automated and would not face additional burdens. On the other hand, large enterprises will smoothly claim the input tax credit and reduce their administrative burden of following up with small vendors.

c. Introduce a revised annual return for correcting any mistakes in the filing of GSTR-9

Introduce a revised annual return for correcting any mistakes in the filing of GSTR-9 return, especially for the B2B transactions. It will resolve a lot of issues.

4. GENERAL BUDGET 2022 EXPECTATIONS

a. HEALTH SECTOR

The healthcare sector is pushing the government to increase spending on genetic research. Experts in the field are further urging the government to Promote Genome Mapping projects and allocate funds to develop resources to monitor the genome-related health status of the population. Some such means include the promotion of public-private partnerships for Genome Mapping projects.

b. REAL ESTATE SECTOR

The real-estate sector is still yet to get the push required to liquidate projects that have been stuck for a while. The general expectation is that this budget will Incentivise both the rental housing market and the affordable housing sector. Another measure that will help the sector’s recovery is a GST waiver on under-construction projects and raw materials like cement, etc. The incentivising of private investment in the affordable housing sector will also give the sector a much-needed boost.

c. EXPORT/IMPORT DUTY ON COTTON

While the government has deferred the increase in GST rates, the textile industry is facing several challenges: the rising price of cotton due to the high level of exports. The sector has urged the government to introduce an export duty on cotton to check the prices. They also urge the government to remove the 5% import duty on raw cotton. This move will also help stabilise the costs and increase cotton imports into the country.

A. Economic Reforms & Schemes – Budget highlights 2021 :

• Budget 2021 revised a few of the items on which Customs Duty Rates as follows:

  1. Reduced duty on copper scrap from 5% to 2.5%
  2. Basic and Special additional excise duty on petrol and high-speed diesel oil (both branded and unbranded) is reduced
  3. Increased duty on solar inverters from 5% to 20%
  4. Raised duty on solar lanterns from 5% to 15%
  5. The basic customs duty on gold and silver was reduced.
  6. The department will rationalise duty on textile, chemicals and other products
  7. The revised rates will be applicable from 2nd February 2021 onwards.
• New tariff items under 2404 11 00 and 2404 19 00 were inserted in accordance with the upcoming HS 2022 nomenclature. Further, an NCCD of 25% is prescribed on these tariff items from 1st January 2022.
• Agriculture Infrastructure And Development Cess (AIDC) was newly imposed on petrol and diesel at Rs2.5 and Rs.4 per litre.
• Regarding agricultural products, the customs duty is increased on cotton, silks, alcohol, etc.
• Exemption of Social Welfare Surcharge on the value of AIDC imposed on gold and silver. Therefore, these items would attract a surcharge at the normal rate, only on value plus basic customs duty.
• The exemption on importing leather will be withdrawn as they are domestically produced.
• A new initiative called ‘Turant Customs’ will be introduced for faceless, paperless, and contactless customs measures.

• CGST Act was amended for several provisions as follows:

  1. Section 16 was amended to allow taxpayers’ claim of the input tax credit based on GSTR-2A and GSTR-2B.
  2. Section 50 of the CGST Act is being amended to provide for a retrospective charge of interest on net cash liability with effect from the 1st of July 2017.
  3. Section 35 and 44 amended: Mandatory requirement of furnishing the GST reconciliation report signed by the specified professional is relaxed by allowing the filing of annual returns on a self-certification basis. The Commissioner can exempt a class of taxpayers from the requirement of filing the annual return.

Related articles on Budget 2022:

• Income Tax Slabs
• Section 80 Deductions
• Capital gains
• Income Tax on House Property
• Inocme Tax on Salaried Individuals
• Adhar Card
• Mutual Funds