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8 April 2022

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India Finance Act 2022 Approved and Published

India's Finance Act 2022 has been published in the Official Gazette following its approval on 30 March 2022. The Act implements the measures of the Union Budget 2022-2023 that was delivered in February 2022. Some of the main tax measures are summarized as follows:

  • A new scheme is introduced for the taxation of virtual digital assets (VDAs), including:
    • income from the transfer of VDAs is separately taxed at the rate of 30%;
    • no deduction in respect of any expenditure or allowance is allowed in computing such income except the cost of acquisition, if any;
    • losses from the transfer of a virtual digital asset cannot be set off against any other income, including income from another virtual digital asset, and such losses may not be carried forward; and
    • tax deducted at source (TDS) is imposed at the rate of 1% on the transfer of virtual digital assets for consideration above a monetary threshold of:
      • aggregate annual consideration of INR 50,000 if paid by a specified person, which generally means an individual or a Hindu undivided family whose business income does not exceed INR 1 crore or whose professional income does not exceed INR 50 lakh; and
      • aggregate annual consideration of INR 10,000 if paid by a person other than a specified person;
  • The alternate minimum tax rate is reduced from 18.5% to 15.0% for cooperatives, which is in line with the rate for companies, along with a reduction in the surcharge for cooperatives from 12% to 7% for those with total income between INR 10 million (1 crore) and INR 100 million (10 crores);
  • The optional 15% corporate tax rate for qualifying domestic manufacturing companies is extended, with the optional rate made available for companies that commence manufacturing or production on or before 31 March 2024;
  • The eligibility period for claiming the tax holiday incentive for start-ups (exemption for 3 consecutive years out 10 years from the date of establishment) is extended, with the incentive made available for start-ups established up to 31 March 2023;
  • The concessional income tax rate of 15% on dividend income received by an Indian company from a specified foreign company (at least 26% held by the Indian company) is removed for any assessment year beginning on or after 1 April 2023;
  • The surcharge on long-term capital gains is rationalized so that the surcharge is capped at 15% for long-term gains arising on the transfer of any type of assets (15% previously limited to long-term gains on listed shares, units, etc., otherwise 37% top rate);
  • Further incentives are introduced to promote the International Finance Services Centre (IFSC), including tax exemptions for the following, subject to certain conditions:
    • income of a non-resident from offshore derivative instruments, or over the counter derivatives issued by an offshore banking unit;
    • income from royalty and interest on account of the lease of ships (in addition to aircraft); and
    • income received from portfolio management services in the IFSC;
  • Effective retroactively from 1 April 2005, provisions are added to clarify that the term "tax" includes and is deemed to have always included any surcharge or cess on income and profits, which is not allowable as business expenditure, with possible penalties imposed for under-reported income if claimed as expenditure unless a taxpayer applies for recomputation of the total income of the previous year without allowing the claim for deduction of surcharge or cess and pays the amount due thereon within the specified time;
  • Provisions are introduced to clarify that carried forward losses may not be allowed to offset undisclosed income detected during search and survey operations;
  • Litigation management is improved in relation to the handling of tax appeals by providing that if a question of law in the case of an assessee is identical to a question of law that is pending in appeal before the jurisdictional High Court or the Supreme Court in any other case, the filing of a further appeal in the case of the assessee will be deferred until such question of law is decided by the High Court or the Supreme Court;
  • Taxpayers are allowed to file an updated tax return within 24 months from the end of the relevant assessment year, subject to certain conditions; and
  • The time limit for completing the assessment proceedings for the Assessment Year commencing on 1 April 2021 (Finance year commencing 1 April 2020) is extended to 30 September 2022, instead of 31 March 2022.

The measures of the Finance Act, 2022 generally apply from the assessment year beginning on or after 1 April 2023 (tax year beginning 1 April 2022), unless otherwise specified.

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