The Union Budget for the financial year 2021-22 was introduced by the Finance Minister of India, Smt. Nirmala Sitharaman on February 1st, 2021. This Union Budget laid a foundation and blueprint of the economy over ‘Amrit Kal’ of the next 25 years – from India at 75 to India at 100. The Budget focused on ‘digital and technology and sectors like infrastructure, health, education, and provision of e-services to the masses. In this article, we shall explore the salient features of the Union Budget for an individual taxpayer like Tax Slabs, Revision of Returns, Tax on Virtual Digital Assets(VDA), Surcharge on Long term capital gains, Money received for treatment or on death due to Covid.
Tax slabs The finance minister Nirmala Sitharaman did not announce any change in the tax slabs. Old and New Regime will be available for FY 2022-23
Updation of returns Taxpayers will get an extra opportunity to file an updated tax return within 2 years from the end of the relevant financial year by paying additional income tax. The earlier window for revising returns was only till three months before the end of the assessment year.
The surcharge on any type of long-term capital gains has been capped at 15 percent. This will be beneficial to high net worth individuals with income above Rs 2 crore a year.
Exemption of amount received towards medical treatment or death due to COVID-19
TDS of 1% on the property now needs to be deducted on the sale consideration or the stamp duty value of such property whichever is higher. TDS On the sale of property tax was deducted at 1% of sale consideration only(irrespective of stamp duty value)
Virtual Digital Assets will be taxed at 30% of profits when you sell or transfer it
e-Passports with embedded chips will be launched
The budget also proposes amendments in relation to faceless assessment and litigation management procedures to reduce litigation and establish a trustworthy tax regime.
Table of Contents
Our Courses, Workbook
Our Income Tax course will teach you everything you need to know about income tax in simple terms that are easy to understand. Learn Income Tax Course
We have come up with a workbook With Examples and Worksheets that explains what is Income, Income Tax slabs, Types of Income, how and when to pay self-assessment tax, how to pay the tax due, how to File ITR More details of the workbook here
Tax on Virtual Digital Assets, Cryptocurrency
Virtual Digital Assets will be taxed at 30% irrespective of when you sell or transfer them, Few salient points:
- 1% TDS has to be cut on the selling value of each trade.
- No cost deductions are allowed (you can’t take out costs of mining etc for calculating the purchase price.)
- Losses, if any, cannot be offset against losses on any other head in the same year.
- No carrying forward of losses. This is similar to Lottery wins – you can’t offset costs, or offset losses, or carry any losses forward
- The gift of virtual digital assets is also proposed to be taxed in the hands of the recipient.
Questions that need to be answered
- Are cryptocurrencies included in VDA?
- Does this make cryptocurrencies legal? This doesn’t make crypto legal, but taxes you on any gains
Revision of Income Tax Return
Finance minister Nirmala Sitharaman announced that taxpayers can file an updated return,(belated or revised), by paying additional tax & within 2 years
For the purpose of income tax, there are mainly three types of returns that can be filed:
1. Original: A valid return filed within the due dates specified is called an original return (Section 139(1) )
2. Revised: When an assessee successfully files his return but subsequently realizes he has either missed some information or has not disclosed the information completely or any other reason for which he wishes to file his return again, is known as a revised return (Section 139(5))
3. Belated: An assessee does not file his return within the timelines prescribed in the income tax act but files it after the due date is referred to as a belated return (Section 139(4) )
So 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 the financial year 2022-23 can be filed before 31 December 2023)
This window replaces the current deadline of either three months before the end of the assessment year or before the completion of the assessment, whichever is earlier.
Filing a revised return is allowed for up to 2 financial years from the end of the relevant assessment year
The additional tax, over and above the tax due, on the updated returns is
- 25% if the updated return is filed within one year from the end of the assessment year.
- 50% tax if the updated return is filed between 12-24 months from the end of the assessment year.
The additional tax calculation would include cess and surcharge on the base tax.
Individual taxpayers will not be able to use this facility if the updated return leads to lesser total tax liability or income tax refund or increase in income tax refunds for the last income tax return filed (original/filed).
However, an updated tax return cannot be filed if the tax return
- results in loss, refund
- if search/ survey proceedings have been initiated
- if assessment/ reassessment/ prosecution proceedings have been initiated by the tax authorities
- the updated tax return has already been filed for the financial year.
if the taxpayer files a return (updated) for the assessment year for which no original, belated or revised return was filed, he/she should pay the tax due, interest on late payment of taxes, and the late filing fee, if not paid.
Let’s take the example of a salaried person who has filed his return for the assessment year 2020-21 (financial year ended March 31, 2020, AY ended 31 Mar 2021), and he has forgotten to include a certain interest income of Rs 50,000. He is in the 30% rate slab and he updates his return in May 2022(within 2 years)
Then the tax on this undisclosed interest income would be Rs 15,660
penal interest up to April 2022 will be Rs 5,030. (25% of 15,660)
The total liability works out to Rs 20,600.
Under the proposed scheme, the additional tax will be Rs 10,303 (50% of Rs. 20,600, as more than one year, has elapsed since the end of the assessment year).
Thus, the total tax payable will be Rs 30,903.
There are now robust ways of reflecting taxpayer’s financial data such as the recently launched Annual Information Statement which captures information on 40-plus financial transactions including bank interest, dividend, rental income, capital gains on the trading of securities, to name a few. An updated filing will allow taxpayers to rectify any mismatch between AIS and their returns.
Long Term Capital Gains Capped
The surcharge on long-term capital gains has been capped at 15 percent. This is beneficial for individuals with income above Rs 2 crore a year such as investors who invest primarily in unlisted equities, where they pay greater taxes such as employees of a startup and domestic venture capitalists sell unlisted shares.
In Financial Year 2021-22 the surcharge on long-term capital gains on the sale of listed equity shares and equity-oriented mutual funds was capped at 15%.
The Finance Bill, 2022 seeks to extend the benefit of this capped surcharge to long-term capital gains arising on the sale of unlisted shares. The fine print may clarify whether this applies to other asset classes as well
Under the current provisions, LTCG on sale of assets (other than listed securities) is taxed at the rate of 20% along with surcharge and cess.
Let’s take an example, an Individual with a total taxable income of over Rs 5 crore will have LTCG on sale of ESOPs of Rs 50 lakh.
Under the current law, tax is Rs 14.25 lakh (tax rate of 20% plus surcharge of 37% plus cess of 4%).
However, with the surcharge rate now capped at 15%, the tax liability stands at Rs 11.96 lakh, leading to a tax saving of about Rs 2.31 lakh
Payment for medical expenditure or death due to Covid
These amendments will be effective from the financial year 2019-2020.
For medical treatment for self or family member due to COVID-19, Any sum paid by employer or sum of money/ property received by an individual from any person, towards expenditure actually incurred on medical treatment will not be taxable subject to conditions that may be specified by the Central Government.
On the death of a person due to Covid 19, Any sum of money or property received by a family member of a deceased person upto 10 lakhs (total) is not taxable in the hands of such family member where
- the cause of death is an illness related to COVID-19,
- payment is received within 12 months from the date of death and
- conditions, as may be specified by the Central Government, are satisfied.
In June 2021, the finance ministry had announced that no income tax will be charged on the amount received by a taxpayer from her employer for COVID-19 treatment expenses. While the announcement was made in June 2021, it was formally included in the Finance Bill 2022-23
