New Income Tax Rules in India Applicable During FY 2022-23
We track the list of changes and new rules impacting collection of income tax in India and tax compliance for FY 2022-23. This article will be periodically updated as new circulars or clarifications are issued by tax authorities. Expatriates are advised to check their residency status to assess exposure to tax liabilities in India and accordingly manage reporting compliances.
As the new financial year (FY) 2022-23 begins from April 1, several income tax and financial changes will come into effect. We provide a list of such changes applicable from April 1, 2022.
To prevent confusion regarding key tax compliances and reporting requirements, businesses are welcome to reach out to our tax advisors at firstname.lastname@example.org.
Higher TDS from April 1 if ITR for FY 2020-21 not filed
As per the announcement made in the Union Budget 2022, if ITR for one year is not filed, then higher TDS, TCS will be applicable in the next financial year. It must be noted that this higher TDS will not be applicable if the source of income is salary or provident fund. However, higher TDS will be deducted from interest income, dividend income, etc. as specified under the Income-tax Act.
On May 17, 2022, the CBDT released a circular informing that non-ITR filers would be subject to higher tax deduction at source (TDS) from the ongoing financial year, FY23. The circular (see here) explained the criteria determining the non-filer or “specified person” who would be subject to the higher TDS for FY 2022-23.
“Higher rate was twice the prescribed rate or 5%, whichever is higher. Specified person meant a person who satisfies both the following conditions:
- He has not filed the returns of income for both of the two assessment years relevant to the two previous years immediately before the previous year in which tax is required to be deducted/collected. Two previous years to be counted are required to be those whose return filing date under sub-section (I) of section 139 has expired.
- Aggregate of tax deducted at source and tax collected at source is INR 50,000 or more in each of these two previous years.”
Thus, banks will be required to check if the individual has met both conditions to attract a higher TDS.
Once the individual files a valid ITR for AY 2021-22 during the current financial year, they will be removed from the list of specified persons attracting higher withholding tax.
Specified persons do not include non-residents who do not have a permanent establishment in India.
Tax on cryptocurrency and other virtual digital assets
A new section 115BBH has been inserted into the Income-tax Act, 1961 for taxation of virtual digital assets. Effective from FY 2022-23, gains from various virtual digital assets, such as bitcoin, dogecoin, non-fungible tokens (NFTs), etc. will be taxed at a rate of 30 percent, plus cess and surcharges. Cryptocurrency transactions for the ongoing year (FY 2021-22 period) will also be taxed.
It must be noted that no deduction towards any expenditure (except cost of acquisition) will be permissible. Further, loss from the transfer of virtual digital assets cannot be set off against any other income.
Recently, the government also clarified that the gains from one virtual digital asset will not be allowed to be set off against losses from other virtual digital assets.
Additionally, it also proposed to provide for deduction of tax on payment for the transfer of virtual digital assets to a resident at the rate of one percent of such consideration above a monetary threshold, which is INR 50,000 in the case of specified persons and INR 10,000 in case of non-specified persons.
Tax on provident fund (PF) account
Effective April 1, the tax will be imposed on interest earned on the contribution to Employees Provident Fund (EPF) if the amount is in excess of the threshold limit of INR 250,000 every year. This new rule is governed under section 9D of the Income-Tax Act.
For the purpose of calculation, the contribution to the PF accounts up to INR 250,000 is tax-free. But, if an employee contributes in excess of the above-mentioned limit, the tax will be imposed on the interest portion earned on the excess contribution. To calculate the interest that will be taxable in the hands of an employee, a new EPF account will be created, if the EPF contributions in FY 2021-22 exceeds INR 250,000.
This rule has been introduced for targeting high-earning taxpayers, to prevent them from taking advantage of the government-backed scheme.
For individuals not having employer’s contribution to their EPF accounts, such as government employees, the threshold is INR 500,000.
Filing of updated income tax return (ITR)
A new provision has been introduced that allows filing updated tax returns within a period of two years from the end of the relevant assessment year. Earlier, the taxpayer only had a window of five months from the due date of filing returns, to revise the tax returns.
However, it must be noted that the updated return cannot be filed to report additional loss or decrease in the tax liability. This provision is introduced to provide an opportunity to include missed or undisclosed income or any other error leading to less filing of tax in the original tax return.
When reporting such additional income, the taxpayer would also be required to pay additional tax at the rate of 25 percent if the updated return is filed in the first year or 50 percent on the additional tax if the updated return is filed in the second year, that is 13-24 months after the end of the relevant assessment year. The tax is required to be paid before the filing of the updated tax return and proof to that extent is required to be attached while filing the updated return.
Tax relief on COVID-19 treatment expenses and compensation
As per the Press Release on June 2021, tax exemption has been provided to persons who have received money for COVID medical treatment. Similarly, money received by family members on the death of a person due to COVID will be exempt up to INR 1 million for family members if such payment is received within 12 months from the date of death. This amendment will be effective retrospectively from April 1, 2020.
Tax relief to persons with disability
Union Budget 2022 has relaxed certain provisions under section 80DD, offering a tax break for the care of disabled persons. As per the new provision, if an individual buys a life insurance policy for a disabled person, then an individual can claim a tax deduction even if policy benefits (such as annuity payments) start during the lifetime of such individual, who has purchased the insurance cover.
Earlier, deduction under section 80DD was allowed when the annuity from the life insurance policy was received by the disabled person after the death of the individual.
The new law will be applicable for life insurance policies bought from FY 2022-23 onwards. Deduction on such policies will be claimed in the next year’s ITR fling.
Withdrawal of tax benefit to new homebuyers
The tax incentive for homebuyers, announced in FY 2019-20 and extended till FY 2021-22, has not been extended to this fiscal. This implies that from FY 2022-23, homebuyers will have to pay more tax.
Earlier, the government had announced an additional INR 150,000 income tax benefit on home loans to those buying a house up to INR 4.5 million.
New TDS rules on sale of immovable property
As per the new TDS rules on sale and purchase of immovable property, which will come into effect from April 1, 2022, the buyer of immovable property will deduct tax at the rate of one percent on the sum paid to the seller or stamp duty value of the property, whichever is higher. TDS on sale of immovable property is applicable if the sale value of immovable property/ stamp duty of the property exceeds INR 5 million.
Earlier, tax was deducted on the money paid by the buyer to the seller.
Senior citizens aged 75 years and above exempted from fling ITR
Effective from April 1, 2022, senior citizens aged 75 years and above are exempted from fling ITR. However, this exemption is available provided certain conditions are fulfilled by the senior citizens. Further, a declaration has to be given by the senior citizen to the bank.
State government employees to claim deduction for NPS contribution
The deductions can be claimed by the employees of the state government under the Section 80CCD(2) for NPS contribution by the employer up to 14 percent of their basic salary and dearness allowance, which is in line with the deduction available to the central government employees under the said section.
Other financial changes
Linking of savings account with different post office schemes
From April 1, 2022, the interest money on Post Office Monthly Income Scheme (POMIS), Senior Citizens Savings Scheme (SCSS), and Term Deposit Accounts will be available in the savings account only and the taxpayer must ensure that these schemes are linked with their savings account. The taxpayer cannot withdraw interest money in cash by going to the post office. Instead, post linking of these schemes, the interest money will be transferred electronically. The government has made it mandatory to use savings account for depositing monthly, quarterly, annual interest in case of SCSS, Time Deposit accounts.
Further, if the savings account or post office is not linked, then the interest will be credited to the sundry office accounts. The outstanding interest in the future will be payable either through credit in post office savings account or via check.
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