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In line with the Government's efforts to provide a stable and predictable tax regime, the direct tax proposals in Budget 2022 have been made with the objective of simplifying the tax system, promoting voluntary compliance by taxpayers and reducing litigation.

While no changes have been proposed to the income tax slabs and tax rates, the budget contains some proposals which will impact individual taxpayers.

Introduction of updated tax returns
If an individual has not filed a tax return within the due date or discovers an omission/ wrong statement in the return filed, a belated return or revised return can be filed before 3 months from the end of the relevant assessment year (i.e. a belated return or revised return for financial year 2022-23 can be filed before 31 December 2023).

The budget proposes introduction of updated tax returns. Whether a person has filed an original/ belated/ revised return or not, an updated tax return may be filed for the financial year within 24 months from the end of the relevant assessment year in the prescribed form (i.e. an updated tax return for financial year 2022-23 may be filed by 31 March 2026).

However, an updated tax return cannot be filed if the tax return results in loss, refund or if search/ survey proceedings have been initiated or if assessment/ reassessment/ prosecution proceedings have been initiated by the tax authorities or updated tax return has already been filed for the financial year.

Further, apart from tax, interest and fee for delayed filing, the person filing an updated return is also required to pay additional tax on omitted income and proof of such payment should accompany the updated tax return.

Scheme for taxation of virtual digital assets
The budget proposes a new definition of virtual digital assets covering any information or code or number or token providing a digital representation of value exchanged, non-fungible token etc and also proposes a new scheme of taxation for such virtual digital assets.

The income from transfer of such assets will be taxed at 30 percent. No deduction will be allowed in computing the taxable income except for cost of acquisition. Loss from transfer of such assets cannot be set off against any other income. Gift of virtual digital assets is also proposed to be taxed in the hands of the recipient.

Further, any person responsible for paying to a resident any sum for transfer of such asset, will be required to deduct tax at 1 percent at the time of credit or payment, whichever is earlier. No tax deduction will be required if (i) aggregate value of consideration does not exceed INR 50,000 during the financial year in case of a specified person or (ii) aggregate value of consideration does not exceed INR 10,000 during the financial year in case of a person other than specified person. Specified person has specifically been defined in the proposed law.

Exemption of amount received towards medical treatment or death due to COVID-19 The Government had earlier made various announcements providing non-inclusion of COVID-19 related payments received by individuals in the taxable income.

The budget now proposes legislative amendment to the Income-tax Act, 1961 ("the Act") to specifically exclude such income from the ambit of taxation.

Any (i) sum paid by employer or (ii) sum of money/ property received by an individual from any person, towards expenditure actually incurred on medical treatment for self or family member due to COVID-19 will not be taxable subject to conditions that may be specified by the Central Government.

Further, any sum of money or property received by family member of a deceased person (i) from employer of the deceased person or (ii) from any other person or persons to the extent that such sums do not exceed INR 10 lakh in aggregate, is not taxable in the hands of such family member where (i) the cause of death is illness related to COVID-19, (ii) payment is received within 12 months from the date of death and (iii) conditions as may be specified by the Central Government are satisfied.

These amendments will be effective from financial year 2019-2020 providing much needed tax relief.

Surcharge on long term capital gains to be capped at 15 percent
Presently, long term capital gains on listed equity shares, equity oriented mutual fund units etc are subject to a maximum surcharge of 15 percent, while other long term capital gains are subject to surcharge up to maximum of 37 percent depending on the taxable income of the individual. In order to reduce the tax burden, the budget proposes to cap the surcharge on all long term capital gains at 15 percent.

Tax relief in relation to insurance premium paid for maintenance of persons with disability
The Act provides for deduction of INR 75,000 (or INR 1,25,000 in case of severe disability) to an individual (parent/ guardian) in relation to amount paid under an insurance scheme for maintenance of a dependent who is a person with disability. Presently, such deduction is available where the scheme provides for payment of annuity or lumpsum for the benefit of the dependent on death of the parent/ guardian.

The budget proposes to extend the deduction to schemes that provide for payment of annuity or lumpsum to the dependent when the parent/ guardian attains 60 years of age or more and where payments or deposits to such scheme has been discontinued.

Increased deduction for employer's contribution to National Pension System ("NPS") for State Government employees

The deduction available to State Government employees in relation to employer's contribution to NPS is proposed to be increased from 10 percent to 14 percent of salary to provide parity with the deduction available to Central Government employees.

Deduction of tax on purchase of immovable property
The transferee of an immovable property other than agricultural land is required to deduct tax at 1 percent at the time of payment to a resident transferor, where the consideration for transfer of the property is INR 50 lakh or more.

The budget proposes to provide for such taxes to be deducted on the sum payable to the transferor or stamp duty value of such property, whichever is higher.

Restriction on set off of brought forward loss against income detected in search and survey operations

No set off of brought forward loss and current year losses would be permitted against income detected in search and survey operations.

Apart from the above, the budget also proposes amendments in relation to faceless assessment and litigation management procedures to reduce litigation and establish a trustworthy tax regime.

While the individual taxpayers have not received any big bang tax sops, there is a hope that by way of various tax proposals, the Finance Minister's objective of simplification of tax regime and reducing tax litigation would be met.

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