Income Tax changes effective from 1st April 2022

Last Updated On: March 31, 2022, 10:34 a.m.
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MAJOR CHANGES IN INCOME TAX EFFECTIVE FROM 1ST APRIL 2022

 

 

1. New tax rules on EPF Interest:

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 Rs. 2.5 lakh 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 Rs. 2.5 lakh 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. It is important to note that only the interest amount on the excess contribution will be considered for tax calculation, and not the contribution amount. This rule has been introduced targeting the high-class taxpayers, preventing them from taking advantage of the government-backed scheme. Because they would park their excess funds in EPF to earn tax-free interest. However, low and middle-class taxpayers will not be affected by this rule.
 

2. Taxation of Virtual Digital Assets:

Union Budget 2022 announced a specific tax provision for virtual digital assets (VDA). The government said that any income from the transfer/sale of any virtual digital asset such as bitcoin, cryptocurrencies, non-fungible tokens (NFTs) shall be taxed at the rate of 30% plus cess and surcharges, and it also proposed to include a provision for TDS which shall be inserted under section 194S to the Act which provides for deduction of tax on payment for the transfer of virtual digital assets to a resident at the rate of 1% of such consideration above a monetary threshold.

The following things are to be noted:

  • Crypto transactions for the ongoing year (i.e., till March 2022 period) will also be taxed.
  • The provisions related to 1% TDS will come into effect from July 1, 2022, while the gains/profit on the transfer of VDA will be taxed effective April 1, 2022.
  • For the purpose of 194S, the threshold limit for TDS deduction is Rs. 50,000 in the case of specified persons and Rs. 10,000 in case of non-specified persons.
  • Specified persons – An individual/HUF whose total sales or gross receipts do not exceed Rs. 1 crore in case of business, OR Rs. 50 lakhs in case of the profession, during the immediately preceding financial year, OR, an individual or HUF, who does not have any income under the head business or profession. In such case, TDS u/s 194S is required to be deducted only if the amount of purchase consideration for the purchase of a virtual digital asset exceeds Rs. 50,000/- during the financial year.
  • In the case of a person other than such a specified person, which includes Firms, LLPs, and Companies, TDS u/s 194S is required to be deducted only, if the amount of purchase consideration for the purchase of a virtual digital asset, exceeds Rs. 10,000/- during the financial year.
  • Losses from virtual digital asset transactions can’t be carried forward.  The benefit is available for businesses, mutual funds, and stocks but not for virtual digital assets.
  • Gifts of such virtual digital assets are to be taxed in the hands of the recipient. While calculating the income from the transfer of VDA, no expenditures are allowed as deductions except for the cost of acquisition.
  • Income Tax Return (ITR) form from next year will have a separate column to declare gains from crypto. However, taxing crypto-currency does not legalize such transaction/currency.
  • The government is working on legislation to regularize cryptocurrencies. Meeting demands from large sections of industry; the RBI will launch a ‘Digital Rupee’ based on blockchain technology in fiscal 2022-23.

 

3. Filing of Updated IT Return:

Earlier, you only had a window of 5 months from the due date of filing returns, to revise the tax returns. Now, there is a new provision introduced that allows filing updated tax returns within a period of two years from the end of the relevant assessment year. However, 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% if the updated return is filed between 1 to 12 months (1st year) or 50% on the additional tax if the updated return is filed between 13 to 24 months (2nd year) from 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.

 

4. NPS deduction to State government employees

The State government employees will now be able to claim deduction under Section 80CCD(2) for NPS contribution by the employer up to 14% of their basic salary and dearness allowance, which is in line with the deduction available to the Central government employees under the said section.

 

5. Removal of benefit under section 80EEA

There was an additional deduction on home loan interest upto ₹1.5 Lakh on house properties valued less than ₹45 Lakh for first-time home buyers. FM has not extended this scheme beyond 31st March 2022. Therefore, this additional deduction of ₹1.5 Lakh won’t be available to taxpayers from 1st April 2022. Other existing deductions on account of home loan interest upto ₹2 Lakh would be continued u/s 24 of I-T Act.

 

6. Surcharge on LTCG

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.

 

7. Tax relief to persons with disability

The parent or guardian of a differently-abled person can take an insurance scheme for such a person

 

8.Tax relief on Covid-19 treatment expenses

 As per the Press Release on June 2021, tax exemption has been provided to persons who have received money for Covid medical treatment. Likewise, money received by family members on the death of a person due to Covid will be exempt up to Rs. 10 lakhs 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.

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