Budget 2022: Top 10 expectations by tax professionals

Union Finance Minister Nirmala Sitharaman will present the Union Budget 2022-2023 in Parliament on 1 February at 11.00 am. The Budget 2022 Session of Parliament will start on 31 January with President Ram Nath Kovind addressing both the Houses. The session will be conducted in two phases — the first phase of the Session will end on 11 February and the second phase of the session will start from 14 March and conclude on 8 April.

The budget comes at a time when the country is fighting against the third wave of coronavirus. Lets check, what the Tax professionals expect from the Budget 2022 under Income Tax and GST-

1. Taxability of Cryptocurrencies

One of hottest topic in the industry is taxation of crypto-currency. Tax professionals are not getting how to tax income from cryptocurrency, whether to show as business, capital gain or other sources. It is highly expected that the government will not prohibit Indians from dealing in cryptocurrencies, we expect that the government could introduce a regressive tax regime for cryptocurrencies.

2. Rationalisation of tax rates

It is unlikely that the Finance Minister would make any change in tax rates or any additional tax deductions under the existing/old tax regime. However, there is definitely need for a policy review of the same as the maximum effective rate of tax of 42.744% (maximum tax rate of 30% plus 37% surcharge plus education cess of 4%) has certainly been one of the reasons for high net worth individuals (HNIs) looking for tax homes outside India. The rationalisation of tax rates may also help increase tax compliance.

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3. Tax Relief for COVID Patients and their families

The Covid-19 pandemic is wreaking havoc across the world – including India, for the last two years or so, but still no specific deduction under the Income Tax Act, 1961 has been provided by the government which covers the treatment cost for COVID-19 patients who are not covered under any health insurance. This despite the fact being that currently, a handful of deductions are available under the I-T Act for medical treatment for self or dependent suffering from disability/ severe disability, medical treatment of prescribed diseases and ailments. The same is the case with a few other expenditures borne by the employer on the treatment of their staff.

It is suggested to insert ‘COVID-19’ as an eligible disease for the purpose of claiming deduction under section 80DDB. Donation made to PM CARES fund designed specifically for providing COVID-19 relief is eligible for 100% deduction u/s 80G of the I-T Act, but no corresponding deduction has been notified for expenses incurred on treatment of the disease itself.

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4. Increase in Standard Deduction to Rs 1 Lakh for Salaried

As India’s economy struggles with the pandemic, there is some room left for the Finance Minister to offer some tax concessions. For the salaried class that has been hit hard by the pandemic, relief can be expected to increase the income in hand and support the increasing demand. The standard deduction for salaried employees may be reinstated to at least Rs. 100,000 to ease the tax burden of the employees and keeping in mind the rate of inflation and purchasing power of the salaried individual, which is dependent on salary available for disbursement. It is recommended that an additional deduction of ‘work from home’ allowance of Rs 50,000 be given to employees who are working from home.

5. TDS Credit Reconciliation

For a variety of reasons, there can be timing differences between the year in which tax is deducted by the deductor and the corresponding income is offered to tax by the deductee. It puts an onerous burden on taxpayers to reconcile TDS with the corresponding income and the year in which it is offered to tax, especially where the volume of transactions is humungous. The tax law may be suitably amended to provide that, so long as the income is offered to tax in any of the years, credit for the TDS reflected in Form 26AS be allowed to the taxpayer in the year of deduction of tax.

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6. Amalgamation losses

In case of amalgamation of companies, losses of the amalgamating company are allowed to be transferred to the merged firm only for a certain class of companies. One of the long-standing demands of the M&E sector is that the provisions should be amended to allow the benefit of carrying forward losses to the companies in the M&E sector as well.

7. Increase in Section 80C limit

The exemption limit under Section 80C of the Income Tax Act was increased from Rs 1 lakh to Rs 1.5 lakh in 2014. The limit may be increased to Rs 3 lakh considering inflation and need for social security for people when they are aged.

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8. Allow ITC to reduce the tax burden on developers

Currently, there is a GST of 5% on under-construction residential units and 1% on affordable housing, but without ITC. No GST is charged on completed units. The GST on cement and steel is 28% and 18% respectively and the tax outgo has spiked along with the rise in these commodity prices. As the developers cannot claim tax credits for GST paid on input items, this amount gets added to the construction cost and leads to higher apartment prices for homebuyers. Further, it also negates the purpose of GST which was to remove cascading impact of taxes. If ITC were allowed, the tax savings will be substantial and allow developers the room to lower prices. The Government can use this budget 2022 session to assuage this concern and assure for restoration of ITC in the upcoming GST council meet. The government may also look at reducing the GST rate on cement to give a boost to construction activity in the economy.

9. Allowability of ITC

Many experts believe that allowing input tax credit on certain expenses relating to the production of content and on payment of advance for acquisition of rights, would go a long way to improve the working capital position.

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10. Redefine affordable housing criteria

Currently, affordable housing is defined based on the property size, its price, and the buyer’s income. For instance, affordable housing is a unit with carpet area up to 90 sq. m. in non-metropolitan cities and towns, and 60 sq. m. in major cities and valued up to Rs 45 lakh for both. The central bank’s definition, on the other hand, is based on the loans given by banks to people for building homes of buying apartments.

Revising the city-wise pricing parameters to include a broader customer base under the benefits of extended to this segment is the need of hour. While the size of units as per its definition (60 sq. m. carpet area) is relatively appropriate, prices of units (up to Rs 45 lakh) are not viable across most cities. For instance, a less than Rs 45 lakh budget is far too low for a city like Mumbai. It needs to be increased to at least Rs 85 lakh.

As for other top cities, the budget range should be increased to at least Rs 60-65 Lakh. With this price revision, more homes will fall within the affordable price tag, allowing more buyers to avail of multiple benefits like lower GST rates at 1% without ITC, government subsidies, and the tax deduction of a total Rs 3.5 lakh on interest repayment of home loans.

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