Finance Bill, 2022--Direct Tax & indirect tax Proposals At a Glance
The Finance Bill, 2022 has proposed various amendments in the Income-tax-1961 And Central Goods and Services Tax Act, 2017 as well as in the Integrated Goods and Services Tax Act, 2017. An analytical study of the key proposals made by the Finance Bill, 2022 is as under. All the amendments (except that of made in section 50) shall come in to force with effect from a date to be notified by the Central Government.
A:: GOODS AND SERVICES TAX PROPOSED AMENDMENTS
1. Additional condition imposed for availment of ITC
The Finance Bill, 2022 proposes to insert one more condition for taking input tax credit, by inserting clause (ba) under section 16(2) which provides that the input tax credit shall not be allowed to a taxpayer unless the details of input tax credit in respect of the said supply communicated to such registered person under section 38 has not been restricted.
The restrictions on taking input tax credit in the specified cases are specified under clause (b) of sub-section (2) of section 38.
2. Extension of maximum time limit for taking input tax credit
It is proposing to enhance the limitation period for taking input tax credit to 30th of the November following the end of financial year to which such invoice or debit note pertains or furnishing of the relevant annual return, whichever is earlier.
3. Cancellation of registration for failure to pay return by composition taxpayers
It proposes to amend clause (b) of sub-section (2) of section 29 so as to provide that the registration of composition taxpayer can be cancelled if has not furnished return for a financial year beyond three months from the due date of furnishing the said return.
4. Increase in time limit for issuane of credit note
The Finance Bill, 2022 proposes to increase time limit for issuance of credit note till 30th day of the November following the end of the financial year in which such supply was made, or the date of furnishing of the relevant annual return, whichever is earlier.
5. Curtailment of time period for rectification of error or omission in Form GSTR-1
(i) Existing provision
Presently, as per first proviso to sub-section (3) of section 37, a taxpayer is allowed to make rectification of error or omission in respect of the details of outward supply till furnishing of the return (i.e. GSTR-1) for the month of September following the end of the financial year Under the above provision, there is not stipulation of furnishing of return for the month of September by the due date. By virtue of the above provision, a taxpayer can rectify any error or omission in furnishing of Form GSTR-1 for any financial year, at any time till furnishing of GSTR-1 for the month of September following the end of the financial year even if such return is filed after the due date.
The Finance Bill, 2022 proposes to curtail time limit for rectification of error or omission in Form GSTR-1 till 30th day of November following the end of the financial year to which such details pertain, or furnishing of the relevant annual return, whichever is earlier.
6. Restriction on furnishing of GSTR-1 if previous return in pending
The Finance Act, 2022 proposes to insert sub-section (4) under section 37 so as to provide that a registered person shall not be allowed to furnish details of outward supplies for a tax period, if the details of outward supplies for any of the previous tax periods has not been furnished by him.
7. Substitution of section 38
The Finance Bill, 2022 proposes to substitute section 38 with new section dealing with 'Communication of details of inward supplies and input tax credit'. As per the new provisions, the details of outward supplies furnished by the registered persons under sub-section (1) of section 37 and of such other supplies as may be prescribed, and an auto-generated statement containing the details of input tax credit shall be made available electronically to the recipients of such supplies in such form and manner, within such time, and subject to such conditions and restrictions as may be prescribed.
Clause (b) of sub-section (2) of section 38 provides for restriction on taking input tax credit, by the recipients, on account of the details of the said supplies being furnished by the following registered persons, --
(i) by any registered person within such period of taking registration as may be prescribed; or
(ii) by any registered person, who has defaulted in payment of tax and where such default has continued for such period as may be prescribed; or
(iii) by any registered person, the output tax payable by whom in accordance with the statement of outward supplies furnished by him under the said subsection during such period, as may be prescribed, exceeds the output tax paid by him during the said period by such limit as may be prescribed; or
(iv) by any registered person who, during such period as may be prescribed, has availed credit of input tax of an amount that exceeds the credit that can be availed by him in accordance with clause (a), by such limit as may be prescribed; or
(v) by any registered person, who has defaulted in discharging his tax liability in accordance with the provisions of sub-section (12) of section 49 subject to such conditions and restrictions as may be prescribed; or
(vi) by such other class of persons as may be prescribed.
8. Amendments in provisions relating to availment of input tax credit
As per sub-section (1) of section 41 of the Act, every registered person shall, subject to such conditions and restrictions as may be prescribed, be entitled to take the credit of eligible input tax, as self-assessed, in his return and such amount shall be credited on a provisional basis to his electronic credit ledger.
As per sub-section (2) of section 41, the credit shall be utilised only for payment of self-assessed output tax as per the return.
Section 41 is proposed to be substituted. Under the new provision, it has been categorically stated that the credit of input tax availed by a registered person under sub-section (1) in respect of such supplies of goods or services or both, the tax payable whereon has not been paid by the supplier, shall be reversed along with applicable interest, by the said person in such manner as may be prescribed. It is, however, provided that where the said supplier makes payment of the tax payable in respect of the aforesaid supplies, the said registered person may re-avail the amount of credit reversed by him in such manner as may be prescribed.
9. Late fees for failure to furnish TCS Return
The Finance Bill, 2022 proposes to amend section 47 so as to provide levy of late fee for failure to furnish TCS statement
PROPOSED AMENDMENTS IN INCOME-TAX ACT-1961
1. Change in tax rates
No change is proposed in tax rates except the following (From the assessment year 2023-24) :
(a) Co-operative societies, if liable to pay AMT, then rate of AMT is proposed to be reduced from 18.5% to 15%.
(b) Surcharge on all types of long term capital gains proposed to be restricted to 15%. Earlier this restriction was limited to capital gains referred to in section 112A and 111A.
2. Offshore income of non-residents
Exemption is proposed to be granted via clause 4G in section 10 to any income received by a non-resident from portfolio of securities or financial products or funds, managed or administered by any portfolio manager on behalf of such non-resident
provided such income accrues in an account maintained with an Offshore Banking Unit in any International Financial Services Centre.
Such an exemption will be limited to the extent such income accrues or arises outside India and is not deemed to accrue or arise in India. This is proposed from the assessment year 2023-24.
3. Exemptions proposed to be withdrawn
Exemptions granted under section 10(8), 10(8A), 10(8B) and 10(9) are proposed to be withdrawn from the assessment year 2023-24.
4. Special provisions where property held under trust includes temple, temple, mosque, gurdwara, church or other place notified under clause (b) of sub-section (2) of section 80G
It is proposed that any sum received by trust or institution helding temple, temple, mosque, gurdwara, church or other place notified under clause (b) of sub-section (2) of section 80G as a voluntary contribution for the purpose of renovation or repair of such temple, mosque, gurdwara, church or other place, may, at its option, be treated by such trust or institution as forming part of the corpus of that trust or institution, subject to the condition that the trust or institution,--
(a) applies such corpus only for the purpose for which the voluntary contribution was made;
(b) does not apply such corpus for making contribution or donation to any person;
(c) maintains such corpus as separately identifiable; and
(d) invests or deposits such corpus in the forms and modes specified under sub-section (5) of section 11.
5. Charitable trusts and exempt institutions
A lot of amendments have been proposed in the scheme of taxation of trusts etc. referred to in section 10(23C)(iv)/(v)/(vi)/(via) or trusts registered under section 12A.
Summary of amendments proposed are as under :
(a) Institutions referred to in sections 10(23C) (iv)/(v)/(vi)/(via) can now accumulate income for the purposes of application to objects just like trusts registered under section 12A.
(b) Where trusts registered under section 12A or Institutions referred to in sections 10(23C) (iv)/(v)/(vi)/(via) accumulate income by filing form no. 10 and fail to utilize that accumulated income up to end of five year period then they can still apply the amount in the sixth year or pay tax on such unutilized sum in the sixth year. Now, it is proposed that tax will be levied in the 5th year itself.
(c) Trusts registered under section 12A or Institutions referred to in sections 10(23C) (iv)/(v)/(vi)/(via) will have to maintain books of accounts in the prescribed manner if their total income exceeds basic exemption limit without considering the exemption under section 10(23C) (iv)/(v)/(vi)/(via) or section 11 and 12.
(d) Specified violations may result in withdrawal of approval under section 10(23C) (iv)/(v)/(vi)/(via) or section 12A. The following shall mean "specified violation",--
6. Disallowance under section 14A
It has been held by courts that no disallowance can be made under section 14A where no exempt income is received in the year.
This position is proposed to be altered retrospectively from the assessment year 2022-23 so as to provide where the exempt income has not accrued or arisen or has not been received during the previous year relevant to an assessment year and the expenditure has been incurred during the said previous year in relation to such income not forming part of the total income then disallowance shall be made.
7. Covid relief
It is proposed that :
(a) any sum paid by the employer in respect of any expenditure actually incurred by the employee on his medical treatment or treatment of any member of his family shall not be treated as perquisite in the hands of employee if it is paid in respect of any illness relating to COVID-19 subject to such conditions as the Central Government may, by notification in the Official Gazette, specify in this behalf.
(b) Any sum of money or property received by an individual, from any person, in respect of any expenditure actually incurred by him on his medical treatment or treatment of any member of his family, for any illness related to COVID-19 subject to such conditions, as the Central Government may, by notification in the Official Gazette, specify in this behalf shall not be taxed under section 56(2)(x). Crowdfunding has not been made exempt.
(c) Any sum of money or property by a member of the family of a deceased person--
(A) from the employer of the deceased person; or
(B) from any other person or persons to the extent that such sum or aggregate of such sums does not exceed ten lakh rupees, where the cause of death of such person is illness related to COVID-19 and the payment is--
(i) received within twelve months from the date of death of such person; and
(ii) subject to such other conditions, as the Central Government may, by notification in the Official Gazette, specify in this behalf shall also not be taxed.
8. Clarification as to section 37(1)
if any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure.
This amendment will take effect from 1st April, 2022.
9. Tax includes cess for the purposes of section 40(a)(ii)
The Finance Bill, 2022 proposes retrospectively from the assessment year 2005-06 that for the purposes of section 40(a)(ii), the term "tax" shall include and shall be deemed to have always included any surcharge or cess, by whatever name called, on such tax
10. Interest payable not to be allowed as deduction where converted into debenture
Section 43B is proposed to be amended from the assessment year 2023-24 so as to provide that conversion of interest into debenture or any other instrument by which the liability to pay is deferred to a future date shall not be treated as paid.
11. Source of source to be proved
A new first proviso to sec. 68 is proposed from the assessment year 2023-24 so as to provide that where the sum so credited consists of loan or borrowing or any such amount, by whatever name called, any explanation offered by such assessee shall be deemed to be not satisfactory, unless--
(a) the person in whose name such credit is recorded in the books of such assessee also offers an explanation about the nature and source of such sum so credited; and
(b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be Satisfactory.
12. Set off of loss consequent to search and survey not to be allowed
Where consequent to a search under section 132 or a requisition under section 132A or a survey under section 133A , other than TDS survey, the total income of any previous year of an assessee includes any undisclosed income, no set off, against such undisclosed income, of any loss, whether brought forward or otherwise, or unabsorbed depreciation under sub-section (2) of section 32, shall be allowed to the assessee under any provision of this Act in computing his total income for such previous year. "undisclosed income" means,--
(i) any income of the previous year represented, either wholly or partly, by any money, bullion, jewellery or other valuable article or thing or any entry in the books of account or other documents or transactions found in the course of a search under section 132 or a requisition under section 132A or a survey under section 133A other than under sub-section (2A) of that section, which has--
(A) not been recorded on or before the date of search or requisition or survey, as the case may be, in the books of account or other documents maintained in the normal course relating to such previous year; or
(B) not been disclosed to the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner before the date of search or requisition or survey, as the case may be; or
(ii) any income of the previous year represented, either wholly or partly, by any entry in respect of an expense recorded in the books of account or other documents maintained in the normal course relating to the previous year which is found to be false and which would not have been found to be so, had the search not been initiated or the survey not been conducted or the requisition not been made.
This provision is effective from the assessment year 2022-23.
13. Tax incentives to start ups
The existing provisions of section 80-IAC of the Act provide for a deduction of an amount equal to one hundred per cent of the profits and gains derived from an eligible business by an eligible start-up for three consecutive assessment years out of ten years, at the option of the assessee, subject to the condition that the eligible start-up is incorporated on or after 1st April, 2016 but before 1st April, 2022 and the total turnover of its business does not exceed one hundred crore rupees.
"Eligible start-up" means a company or limited liability partnership engaged in eligible business which fulfils the following conditions, namely:--
(i) it is incorporated on or after the 1st day of April, 2016 but before the 1st day of April, 2022;
(ii) the total turnover of its business does not exceed 100 crore rupees in any of the previous years relevant to the assessment year for which deduction under section 80-IAC(1) is claimed [Deduction can be claimed, at the option of the assessee, for any three consecutive assessment years out of ten years beginning from the year in which the eligible start-up is incorporated]; and
(iii) it holds a certificate of eligible business from the Inter-Ministerial Board of Certification as notified in the Official Gazette by the Central Government.
The Finance Bill, 2022 proposes to extend the terminal year to 2023. Accordingly, "Eligible start-up" may be incorporated before 1-4-2023.
14. Rationalisation of provisions of section 115BAB
As per new section 115BAB a domestic company may opt for lower rate of tax being 15 per cent for the assessment year 2020-21 or thereafter, subject to fulfilment of certain conditions.
First condition for applicability of section 115BAB is that the company has been set-up and registered on or after the 1st day of October, 2019 and has commenced manufacturing or production of an article or thing on or before the 31st day of March, 2023.
It is proposed that the terminal year for start of manufacturing or production of an article or thing be extended to 31-3-2024.
15. Tax on crypto assets
Framework for taxation of crypto assets provided from the assessment year 2023-24 :
(a) any income from the transfer of any virtual digital Asset is proposed to be taxed at 30%. No deduction in respect of any expenditure (other than cost of acquisition) or allowance or set off of any loss shall be allowed to the assessee under any provision of thie Act in computing the income.
(b) no set off of loss from transfer of the virtual digital asset computed as above shall be allowed against income computed under any other provision of this Act to the assessee and such loss shall not be allowed to be carried forward to succeeding assessment years.
(c) Receipt of crypto assets will be taxed in the hands of recipient,
(i) if received without consideration , and aggregate fair market value then the entire aggregate fair market value
(ii) If received for a consideration which is less than the aggregate fair market value of the property by an amount exceeding fifty thousand rupees, the aggregate fair market value of such property as exceeds such consideration.
(d) Tax to be deducted on consideration for transfer of a virtual digital asset at 1%.
No tax shall be deducted in a case, where--
(a) the consideration is payable by a specified person and the value or aggregate value of such consideration does not exceed fifty thousand rupees during the financial year; or
(b) the consideration is payable by any person other than a specified person and the value or aggregate value of such consideration does not exceed ten thousand rupees during the financial year.
16. AMT reduced for co-operatives
It is proposed that in case of co-operative society rate of AMT shall be 15% from the assessment year 2023-24.
17. Updated return
A new section 139(8A) is proposed from 1-4-2022 so as to enable any person whether or not he has furnished a return under sub-section (1) or sub-section (4) or sub-section (5), for an assessment year , to furnish an updated return of his income or the income of any other person in respect of which he is assessable under this Act, for the previous year relevant to such assessment year, in the prescribed form, verified in such manner and setting forth such particulars as may be prescribed, at any time within twenty-four months from the end of the relevant assessment year.
18. Faceless assessment
The Taxation and other laws (relaxation and amendment of certain provisions) act, 2020 has amended these sections so as to provide that assessment under Faceless Assessment Scheme, 2019 shall be made only upto 31-3-2021 and inserted a new section 144B .
Section 144B(1) provides that the assessment under sub-section (3) of section 143 or under section 144, in the cases referred below, shall be made in a Faceless manner as per the procedure discussed below.
The Faceless assessment as above shall be made in respect of such territorial area, or persons or class of persons, or incomes or class of incomes, or cases or class of cases, as may be specified by the CBDT.
The Finance Bill, 2022 proposes to substitute section 144B(1) to 144B(8) once again from 1-4-2022.
18. Reassessment fine-tuned
It is proposed from 1-4-2022 that:
(a) No approval shall be required where the Assessing Officer, with the prior approval of the specified authority, has passed an order under clause (d) of section 148A to the effect that it is a fit case to issue a notice under section 148.
(b) Cases upto 3 years from the end of the relevant assessment year can be reopened on basis of any audit objection, information referred to sec. 90/90A/135A
(c) No pre-inquiry under section 148A to be made where the Assessing Officer has received any information under the scheme notified under section 135A for any assessment year in the case of the assessee.
(d) In search and survey cases no order of assessment or reassessment or recomputation shall be passed by an Assessing Officer below the rank of Joint Commissioner except with the prior approval of the Additional Commissioner or Additional Director or Joint Commissioner or Joint Director.
(e) Scope of reopening beyond 3 years and upto 10 years extended If Assessing Officer has in his possession books of account or other documents or evidence which reveal that the income chargeable to tax, represented in the form of--
(i) an asset;
(ii) expenditure in respect of a transaction or in relation to an event or occasion; or
(iii) an entry or entries in the books of account, which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more.
19. TDS under section 194-IA
In order to remove inconsistency, it is proposed to amend section 194-IA of the Act to provide that in case of transfer of an immovable property (other than agricultural land), TDS is to be deducted at the rate of one per cent. of such sum paid or credited to the resident or the stamp duty value of such property, whichever is higher. In case the consideration paid for the transfer of immovable property and the stamp duty value of such property are both less than fifty lakh rupees, then no tax is to be deducted under section 194-IA.
20. Provisions of section 206AB simplified
In order to ensure that all the persons in whose case significant amount of tax has been deducted do furnish their return of income, it is proposed to reduce two years requirement to one year by amending sections 206AB and 206CCA of the Act to provide that "specified person" to mean as a person who has not filed its return of income for the assessment year relevant to the previous year immediately preceding the financial year in which tax is to be deducted or collected, as the case may be, and the amount of tax collected and deducted at source is Rs. 50,000 or more in the said previous year.
These amendments will take effect from 1st April, 2022.
21. Penalty under sections 271AAB, 271AAC and 271AAD can also be levied by Commissioner (Appeals)
it is proposed to amend the sections 271AAB, 271AAC and 271AAD by enabling the Commissioner (Appeals) to levy penalty under these sections to the along with Assessing Officer.
These amendments will take effect from 1st April, 2022.