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How the budget proposals will impact you

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  • The 2022 Union Budget has kept slabs and tax rates unchanged for the vast majority of individuals. However,  it has made special tweaks for particular groups of people, such as state government employees, the disabled  and those engaged in crypto trading

The 2022 Union Budget has kept slabs and tax rates unchanged for the vast majority of individuals. However, it has made special tweaks for particular groups of people, such as state government employees, the disabled and those engaged in crypto trading. The income tax for these groups of people will be affected and we have illustrated this through a few examples. Note that we have made certain simplifying assumptions for the sake of the examples and the actual tax liability differs based on a host of circumstances affecting each individual.

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Mahesh is an IT professional earning 30 lakh with crypto trading income of 5 lakh. Crypto income will be taxed at 30% and can’t be set off or carried forward. He will pay 1% TDS on crypto transactions.

Manisha, a state government employee, earns 15 lakh a year with a basic salary of 7.5 lakh. The tax-exempt employer contribution is now 14% of basic salary. Her employer will now contribute 1.05L.

Suresh is a senior citizen with a disabled son. He gets a pension of 10 lakh and pays 75,000 under Section 80 DD for an insurance policy for his son. The deduction will go on even if his son passes away.

What’s in it for corporates

The government has announced a 35% uptick in capital expenditure outlay to 7.5 trillion. This, along with a 1 trillion support extended to states for capex commitments, is expected to give a strong push to growth. The increased spending will see better revenue growth for companies, especially those in the private sector focused on infrastructure. It  will help revive the confidence of the broader private sector and push it to increase spending plans. Higher government spending is also expected to empower consumers with better spending power.

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What’s in it for consumers

The 2022 Budget has made no changes in tax slabs or taxes on investment income. Despite widespread fears about the levy of wealth tax or inheritance tax, neither of these has been imposed. Similarly, neither short-term nor long-term capital gains tax has been changed. However, the budget has capped the surcharge on long-term capital gains tax on unlisted shares at 15%, bringing them on par with tax on listed shares. This is likely to help early-stage investors in start-ups who tend to be high net worth individuals.

Ease of doing business

Having scrapped over 25,000 compliances and repealed over 1,486 laws in the past few years, the Centre is moving towards Ease of Doing Business 2.0. This phase will involve digitization of processes and interventions, integration of central and state-level systems via IT bridges and a standardization and removal of overlapping compliances. The scope of single window portal for green clearances will be expanded to enable application for approvals through a single form, and tracking of process om Centralized Processing Centre-Green.

Clarity for crypto investors

The budget has levied 30% tax on trading profits or investment profits on digital assets such as cryptocurrencies. No deduction other than cost of acquisition is permitted when computing such profits. In addition, it has imposed a 1% tax deducted at source (TDS) on such transactions. Where crypto is exchanged for crypto (payment in kind), the person making the payment shall ensure that TDS is paid on the transaction. No set-off of crypto losses against gains on other assets is permitted and such losses cannot be carried forward into future years.

Push for sustainable development

In line with India’s commitments at COP26, the finance minister announced a slew of measures such as increased allocation for domestic solar module manufacturing, a proposal for a battery swapping policy and interoperability framework, encouraging private sector to develop sustainable and innovative business models for ‘Battery or Energy as a Service’ and mobilising funds through sovereign green bonds, among others. This will boost the renewable energy and electric vehicles sectors and access to capital for green projects

Relief for differently abled

Section 80 DD grants a deduction to parents or guardians of differently abled people on premium payments for insurance policies that pay out money to their dependents on the death of the parent. However, if the dependent family member dies before the parent, the amount deposited in such a policy gets added to the taxable income of the parent. To give relief to such parents, the finance minister has allowed parents to retain the deduction after they cross the age of 60 even if the dependent person dies.

Liquidity support to MSMEs

The Centre has decided to extend the Emergency Credit Line Guarantee Scheme (ECLGS) up to March 2023 and its guarantee cover will be expanded by 50,000 crore to a total cover of 5 trillion. MSMEs with modest financial resources were hardest hit by covid and lockdowns, and more than 13 million MSMEs have availed extra credit under the scheme. Given the significant role played by MSMEs in the economy and corporate supply chains, further liquidity support will provide a much-needed boost to corporate India’s growth efforts.

National Pension  System relief

The budget has raised the tax exemption on employer contribution to national pension system (NPS) for state government employees from 10% to 14% of basic salary plus dearness allowance. Central government employees receive a 14% contribution on NPS from their employer and this is exempt from tax. However, this was restricted to 10% for state government employees. Hence, the budget has brought parity between central and state government employees. However, for private sector employees, the deduction is still restricted to 10%.

Relook at PE/VC regulations

The Centre took cognizance of the key role played by private equity and venture capital investors in providing capital to firms and entrepreneurs. These investors put in more than 5.5 trillion in FY21 into the India economy. The proposal to set up an expert panel to examine and suggest appropriate measures on regulatory and other frictions for these investors will boost their confidence to invest more capital into India and provide greater access to capital for India Inc and the country’s rapidly growing startup economy.

TDS on immovable property

Buyers of immovable property are required to deduct tax at source at 1% on sale of immovable property exceeding 50 lakh. However, there was ambiguity with regard to tax deducted at source (TDS) where the value of the immovable property sold is below the stamp duty rate (also known as circle rate) even though income tax is levied on the stamp duty value. To clear such ambiguity, the budget has mandated that 1% TDS be deducted on stamp duty value. This applies to cases where the stamp duty value exceeds 50 lakh.

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