Budget 2022: A step in the direction towards $5 trillion economy

budget 2022 income tax
Budget 2022 doesn’t offer any change in income tax rates or slabs for individual taxpayers, but HNIs will benefit from the cut in surcharge on long-term capital gains tax to 15%.

Union finance minister Nirmala Sitharaman presented the Budget 2022 on Tuesday as India continues to fight the third wave of the Covid-19 pandemic triggered by the Omicron variant. The last two years have been difficult as India has gone through disruptive waves of the pandemic wherein, it faced a loss of manpower, an economic slowdown and a decline in consumption. The GDP contracted by 7.3% in 2020-21 which is the most severe fall since Independence. The Economic Survey 2021-22 predicts that the Indian economy will expand 9.2% in 2021-22 and 8-8.5% in 2022-23.

The FM listed the top four government priorities for Amrit Kaal from 75 years to 100 years of independence (i.e. the next 25 years), namely PM Gati Shakti, inclusive development, productivity in the sunrise sector and energy transition, and climate action and financing of investments. The vision is to benefit the youth, women, farmers, and lower castes, while also seeking to give a blueprint to steer the economy for the next 25 years.

READ I  Budget 2022: A missed opportunity to trigger investment growth in agriculture

Budget 2022 and tax reforms

With the vision of establishing a tax regime based on trust, key tax proposals announced in Budget 2022 focus on promoting voluntary tax compliance, reducing litigation, carrying forward digitisation, and extending socio-economic welfare measures.

There is no change in income tax rates and slabs for individual taxpayers who have been hoping for more disposable income for consumption and investment. However, surcharge on long-term capital gains tax has been reduced to 15% compared with the graded rate of 37% on all types of assets which will reduce burden on HNIs. To provide relief to Covid-19 victims, the amount received on account of medical treatment from the employer, or any sum received by a family member of a deceased person from the employer upto Rs 10 lakh from others has been exempted from tax.

To repose trust in taxpayers and to facilitate litigation-free environment, additional time of upto 24 months has been proposed for taxpayers to file the particulars of their income in an updated return along with the payment of an additional tax of 25-50% on such income.

READ I  The age of infodemic: Will a media literacy policy help?

Digital assets under tax net

Virtual digital assets that have been in the news for some time now has caught the attention of the government. The Budget 2022 proposes to tax income from transfer of any virtual digital assets at the rate of 30%. The term virtual digital asset has been defined widely to include assets such as cryptocurrency and non-fungible tokens.

The incentives for start-ups and new manufacturing companies have also been proposed to be rationalised by extending the relevant dates — eligible start-ups incorporated on or before 31 March 2023 and date of commencement of manufacturing for new manufacturing companies to 31 March 2024. Measures have also been proposed to give a further boost to the International Financial Services Centre (IFSC) by proposing exemptions to non-residents deriving specified incomes from such IFSCs.

On the policy front, the Budget proposes to replace the existing SEZ law with a new legislation to enable states to become partners in the development of enterprise and service hubs. Further, reforms under the customs administrations of SEZ are proposed which are aimed at improving ease of doing business.

The Budget has laid emphasis on infrastructure spending to revive the economy hit by the Covid-19 pandemic. To augment the Make in India initiative, especially in the domestic capital goods sector, phasing out customs duty exemptions on capital goods and project imports gradually and replacing it with moderate tariff of 7.5% has been proposed. Alongside, a few exemptions are introduced on inputs to energise domestic manufacturing. Customs duty rates have been leveraged in the Budget to incentivise domestic value addition.

To sum up, the changes brought about in Budget 2022 are in line with the government’s ongoing initiatives towards infrastructure spending, measures to make India a manufacturing hub, improving ease of doing business, and becoming a $5 trillion economy by 2025. Overall, the Budget 2022 should be welcomed as an equitable one.

(Promod Batra is Partner and Monisha Agrawal is a Senior Manager with Deloitte Haskins and Sells LLP.)

Subscribe to Policy Circle newsletter

%d bloggers like this: