Major Changes and effective from 1st April 2022
How the capping of LTCG surcharge at 15% will benefit taxpayers
Presently, there is a cap of 15% surcharge on long term capital gain on the sale of listed equity or mutual funds. From 1st April 2022, this cap will be extended to long term capital gain on all assets. Earned by Resident taxpayers (other than Companies and Firms) arising on transfer of securities irrespective of the amount of capital gains as against the current higher rate of surcharge of 37% and 25%.
This change will significantly benefit high-income taxpayers who were previously subject to higher surcharge rates on long-term capital gains from assets other than listed equity and mutual funds. The uniform 15% cap provides tax predictability and reduces the tax burden on capital gains.
Filing of updated IT Return
A new provision is inserted that allows the taxpayers to file an updated return for errors or mistakes done in income tax returns. Taxpayers can now file an updated return within two years from the end of the relevant assessment year.
This provision provides taxpayers with an opportunity to correct any errors or omissions in their original or revised returns, subject to payment of additional tax and interest. This helps in reducing litigation and provides taxpayers with a chance to voluntarily correct their returns.
Key Points:
- Updated return can be filed within two years from the end of the relevant assessment year
- Additional tax and interest will be applicable
- Helps in voluntary compliance and reduces litigation
Tax on PF account
The Central Board of Direct Taxes (CBDT) has decided to implement Income-tax (25th Amendment) Rule 2021 from April 1. It means that a cap of tax-free contributions up to ₹2.5 lakh is being imposed on the Employee Provident Fund (EPF) account. If the contribution is made above this, then the interest income will be taxed.
Impact on Employees:
- Tax-free limit: Contributions up to ₹2.5 lakh per annum remain tax-free
- Tax on excess: Interest income on contributions exceeding ₹2.5 lakh will be taxable
- Planning required: Employees with high contributions may need to review their EPF strategy
Turnover limit for e-invoicing reduced from ₹ 50 crore to ₹ 20 crore
The Central Government on the recommendations of the GST Council has amended Notification No. 13/2020-CT dated. 21.03.2020 to reduce the threshold limit of aggregate turnover for the applicability of e-invoicing provisions from ₹ 50 crore to ₹ 20 crore. The said amendment shall become effective from 1st April 2022.
Implications for Businesses:
- Expanded coverage: More businesses will now be required to generate e-invoices
- Compliance: Businesses with turnover between ₹20 crore and ₹50 crore need to implement e-invoicing systems
- Digital transformation: Furthers the government's push towards digital compliance
Crypto Tax
The crypto asset tax regime in India will gradually roll out in the financial year starting April 1. Provisions on the 30% tax will be effective at the start of the fiscal year while those related to the 1% TDS under section 194S will come into effect from July 1, 2022. The 2022-23 Budget has brought in clarity concerning the levy of income tax on crypto assets. The threshold limit for TDS would be ₹50,000 a year for specified persons, which includes individuals/HUFs who are required to get their accounts audited under the I-T Act.
Key Crypto Tax Provisions:
1. 30% Tax on Crypto Gains: Income from transfer of virtual digital assets (crypto) is taxed at 30%, effective from April 1, 2022.
2. No Deduction Allowed: No deduction for expenses (except cost of acquisition) is allowed while computing income from crypto transactions.
3. Crypto received as gifts will be taxable: If you receive a gift in form of crypto currency or any other virtual digital asset, it would be liable for taxation as a gift.
4. Crypto losses cannot be set off against crypto gains or other assets: The Indian government has tightened norms for crypto by disallowing losses incurred in a particular digital asset to be set off against income from another version of a crypto holding.
5. 1% TDS from July 1, 2022: TDS at 1% will be applicable on transfer of virtual digital assets from July 1, 2022, with a threshold of ₹50,000 per year for specified persons.
Who is mandatorily subject to Tax audit?
A taxpayer is required to have a tax audit carried out if the sales, turnover or gross receipts of business exceed Rs 1 crore in the financial year. However, a taxpayer may be required to get their accounts audited in certain other circumstances.
Amendments in the above provision:
Finance Act 2020: The threshold limit of Rs 1 crore turnover for a tax audit is proposed to be increased to Rs 5 crore with effect from AY 2020-21 (FY 2019-20) if the taxpayer's cash receipts are limited to 5% of the gross receipts or turnover, and if the taxpayer's cash payments are limited to 5% of the aggregate payments.
Finance Act 2021: With effect from 1st April 2021 from AY 2022-23 (FY 2021-22), the threshold limit of Rs 5 crores is increased to Rs 10 crores in case cash transactions do not exceed 5% of the total transactions.
Current Tax Audit Thresholds:
- General threshold: ₹1 crore (if cash transactions exceed 5%)
- Higher threshold: ₹5 crore (if cash transactions ≤ 5% of total)
- Highest threshold: ₹10 crore (if cash transactions ≤ 5% of total, effective from AY 2022-23)
Conclusion
The changes effective from April 1, 2022, represent significant amendments to the tax landscape in India. These changes impact various aspects including capital gains taxation, IT return filing, EPF contributions, GST compliance, crypto taxation, and tax audit requirements.
Taxpayers should be aware of these changes and plan their financial affairs accordingly. For detailed guidance on how these changes affect your specific situation, please consult with our team of expert Chartered Accountants.