Budget 2022 & the investor

With a road map to steer the economy over the AmritKaal of the next 25 years - from India at 75 to India at 100, the government thrust on capital expenditure is definitely the show stopper for the Budget 2022-23. The plan for boosting the modern infrastructure is largely under the reins of PM Gati Shakti, which rests on seven pillars - roads, railways, airports, ports, mass transport, waterways, and logistics infrastructure. Promoting digital economy and fintech, technology-enabled development, energy transition, and climate action are some of the other key areas where the government aims to focus.

Brevity was probably the only common thread in this budget speech and any relief to the individual tax-payer. No revision in tax slab rates and any enhancement in tax deductions are a major disappointment for individual taxpayers who already feel the pinch of rising inflation and lower returns on their deposits. The upward revision in the limit of Section 80C was much anticipated as the last hike was done in 2014-15. Further, no enhancement of standard deduction adds to the hardships of salaried individuals. However, here are the key highlights from this budget relevant to individual investors and taxpayers. Note that these are based on early implications, and some of these points will become clearer with time.

Post offices to come under the core banking system
To promote inter-operability and financial inclusion, all 1.5 lakh post offices will be brought under the core banking system in 2022. That would allow people to access their accounts online via net banking, mobile banking, ATMs and transfer funds online between their post office accounts and bank accounts. This move will also benefit all small saving schemes investors.

Facility for filing 'Updated return'
Sometimes there can be slip-ups in estimating taxable income by taxpayers. To correct such errors, one can now avail a two-year window from the end of the relevant assessment year (AY) to declare income which one may have missed out. This will avoid the lengthy adjudication process and hopefully enhance compliance among taxpayers. However, the facility to update your income tax return comes at a cost. Apart from the tax as calculated on the updated (higher) income along with interest for the delay, you will have to pay an additional tax at the rate of 25 per cent of tax plus interest if you file the revised return within 12 months of the completion of the relevant assessment year. If you file it after 12 months, the additional tax rate goes up to 50 per cent.

NPS exemption limits increased for state government employees
In a move to bring the benefits arising from NPS (Tier-I) to state government staff at par with central government employees, the finance minister has proposed to hike the tax deduction limit on employers' NPS contribution to 14 per cent from 10 per cent of basic salary and dearness allowance. Thereby reducing the tax burden of state government employees.

We believe NPS is a good retirement saving vehicle; thus, while this is a welcome move for government employees, this benefit could have also been extended to private sector employees. Given that contributing towards NPS is voluntary in the case of non-government employees, extending such benefits would have been helpful to draw non-government workforce under the NPS umbrella. However, that hasn't been done. Currently, non-government employees can claim a tax benefit of up to 10 per cent.

Benefit on buying annuity for maintenance of a disabled dependent
Income tax rules allow individuals a deduction (from taxable income) on the premium paid towards life insurance products that promise to pay an annuity or a lump sum for the maintenance of a disabled person upon the caretaker's death. It has now been proposed to extend the tax deduction on premiums for even those policies that promise to pay the annuity or lump sum during the lifetime of the caretaker, but after the age of 60 years, and not only on their death. This will contribute towards easing the tax burden of the parents or guardians of the differently-abled. But having said that, we do not think highly of annuity products offered by life insurance companies. They are complicated, lack transparency and generally provide lower returns. From that standpoint, this provision has a limited appeal.

Cryptocurrencies brought under the tax net
In a big disappointment for crypto fanatics, the budget proposes to tax the gains made from them at a steep rate of 30 per cent. This puts them at par with the tax treatment of winnings from lotteries. In her budget speech, the Finance Minister noted that there has been a phenomenal increase in the transactions in 'virtual digital assets' (read cryptocurrencies, NFTs or similar), making it imperative to bring them under a specific tax regime. Besides taxing the gains arising upon their transfer at 30 per cent, the FM mentioned that no deduction for any expenses other than the acquisition cost will be allowed while calculating the gains. Further, loss from the transfer of virtual digital assets cannot be set off against any other income.

Moreover, to ensure that such transactions do not escape the radar of tax authorities, TDS at the rate of 1 per cent has been levied at the time of transfer beyond a certain monetary threshold, which is Rs 50,000 in case of certain specified persons and Rs 10,000 for others during a financial year.

RBI to launch digital rupee
The finance minister also announced that RBI would introduce its digital currency, called the Central Bank Digital Currency (CBDC), in FY 22-23. The currency is expected to be tethered to the fiat version of the Indian rupee. It will lead to a more efficient and cheaper currency management system and use Blockchain as its underlying technology. The finance ministry states the currency can provide significant benefits, such as reduced dependency on cash, lower transaction costs and reduced settlement risk.

Surcharge on all LTCG capped at 15 per cent
Currently, the surcharge rate varies from 10 per cent to 37 per cent depending on the total income of the tax-payer. However, the surcharge on long term capital gain (LTCG) on listed shares and equity funds was capped at 15 per cent. Therefore, till now, for LTCG arising out of other assets, the surcharge has increased progressively as per the income slab to which the taxpayer belongs.

However, from the next financial year, the surcharge on LTCG of non-equity assets would also be capped at 15 per cent.

Deterrence to tax evasion
The Finance Minister has announced that the losses incurred in previous years cannot be set off against tax liabilities on undisclosed income detected during search and survey operations by the income tax department. It has been done to increase deterrence among tax evaders and tackle the ambiguity regarding the set-off of brought forward loss against undisclosed income detected in search operations.