Key changes to income tax rules the common man needs to know

The 2022 Union budget presented to Parliament on Tuesday had raised a lot of expectations from the common man struggling with the impact of the Covid-19 pandemic. The top tax rate was expected to rise from 30% to 25%, with a corresponding increase in the limit from Rs 10 lakh to Rs 20 lakh. It was also expected that the government would come up with an additional “work from home” deduction, given that currently employees work from home in all businesses and incur additional “work from home” expenses. at home”, such as internet costs, rent, electricity. , and furniture. Expectations were high for the increase in the limit of Section 80C of the Income Tax Act 1961 (the Act).

However, no such modification has been proposed. Instead, the finance minister has steered the proposals towards three key areas, namely simplification, increased compliance and voluntary reporting, and reduced litigation.

The government has proposed the filing of an updated declaration in a case where the taxpayer has not declared certain income to the tax and disclosed them in the tax return. Current tax laws provide for a period of 9 months from the end of the relevant financial year to file a late declaration or a revised declaration, as the case may be. However, since this additional time for filing a revised/late return may not be adequate, and to motivate the taxpayer toward the desired goal of voluntary tax compliance, the budget proposes that taxpayers may file a “return update” subject to payment of an additional fee. tax.

This updated declaration may be filed within three years of the end of the financial year concerned. It is proposed to levy an additional amount equal to 25% per year when the declaration is filed within two years of the end of the financial year concerned, or 50% if it is filed after two years but before three years. Additional tax is due on the tax and interest due on the additional income provided in the updated return.

In addition, long-term capital gains resulting from publicly listed shares, equity-oriented funds are subject to a maximum surcharge of 15 percent; on the other hand, other long-term capital gains (e.g. LTCG on real estate or LTCG on shares of unlisted companies) are subject to a progressive surcharge which can be up to 37% depending on total income of the person. Accordingly, as a step towards streamlining the said provision, the FM has proposed to cap the surtax on long-term capital gains resulting from the transfer of any type of capital asset at 15%. It is a beneficial decision and should give a boost, especially to the start-up community.

In line with recent trends, the budget proposes to levy a tax on the sale or gift of virtual digital assets (VDAs) such as cryptocurrency, NFT, etc. More and more people are investing in crypto and non-fungible trusts (NFTs) today. There has been a phenomenal increase in interest in these assets, especially from millennials. Given the scale and frequency of these transactions, there was an urgent need for clarification on the taxation of these VDAs. As a result, it has been proposed that any income derived from the transfer of any digital asset (defined in the law), including crypto and NFTs, will be taxed at a flat rate of 30%. It is proposed to allow the deduction only for the cost of acquisition and no other deductions are allowed. Similarly, the gift of such assets will also be taxable in the hands of the recipient.

While the budget may have lacked glamour, it seems like a step in the right direction to ensure compliance and reduce litigation. We will see to what extent these objectives will be achieved in the years to come.

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