The Hon’ble Finance Minister Nirmala Sitharaman presented the Finance Bill, 2022 in the Indian Parliament on February 01, 2022. It was notified by the Central Government on March 30, 2022.
A number of amendments have come up in the provisions of the Income Tax Act and the Goods and Services Tax Act, wherein the key amendments include filing of an updated return, a taxation scheme for virtual digital assets, the extension of the timeline to claim the Input Tax Credit (ITC) in respect of the tax invoice or the debit note, etc.
Key amendments of the Finance Act, 2022 are summarized below:
Income Tax Act
- Updated Tax Returns
To promote voluntary tax compliance and reduce litigation, the Finance Act, 2022 (Finance Act) has introduced the concept of filing updated tax returns. The provision allows a taxpayer to file an updated return of income, whether he has filed a return previously for the relevant assessment year or not. A fifth proviso to Section 139(8A) has been inserted which has stated the provision of updated returns comes with additional tax liability for an assessee, which are:-
- Any person has to file an updated return of income within 2 years from the end of relevant assessment year, even if no return of income was filed previously to declare income as per correct details.
- An additional 25% on the due tax and interest would have to paid if the updated ITR is filed within 12 months, while the rate will go up to 50% if it is filed after 12 months, but before 24 months from end of relevant Assessment Year.
- If the updated return, is a return of a loss or has the effect of decreasing the total tax liability determined on the basis of return furnished results in refund or increases the refund due on the basis of return or where the updated return has already been filed earlier or an assessment or reassessment proceedings are pending.
- Tax on Virtual Digital Assets
Section 115BBH(2) proposed to provide the method of computation and the tax rate for the income arising from the transfer of Virtual Digital Asset (VDA). It starts with a non-obstante clause and contains the following two clauses-
- Clause (a) provides that no set-off of any loss shall be allowed to the assessee in computing the income arising from transfer of any VDA; and
- Clause (b) provides that no set-off of loss from the transfer of the VDA shall be allowed against income computed under any other provision of this Act, and such loss shall not be allowed to be carried forward to succeeding assessment years.
- Deduction of tax on benefit of perquisite in respect of business or profession
Section 194R of the Finance Act provides that if a provider provides to any resident any benefit or perquisite arising from the business or profession by such resident, shall, before providing such benefit or perquisite, deduct tax at the rate of 10% of the value or aggregate of the value of such benefit or perquisite. The benefit or perquisite may be in cash or in kind. The provision shall not apply in the following cases:-
- In case of a resident, where the value or aggregate of the value of the benefit or perquisite provided during the financial year does not exceed Rs. 20,000
- In case of a person being an individual or a Hindu undivided family, whose total sales, gross receipts or turnover does not exceed Rs. 1 crore in case of business or Rs. 50 Lakh in case of profession, during the financial year immediately preceding the financial year in which such benefit or perquisite, as the case may be, is provided by such person.
- Change in the Definition of Books of Accounts
Section 2(12A) has amended the definition of books of accounts with the purpose to include the records even in the digital form or the electronic form. It should cover books of accounts maintained and stored in software installed on a computer or maintained and stored on a cloud or website.
- Change in the Rate of Alternate Minimum Tax for Co-operative Societies
Section 115JC has been amended the provision for payment of tax by certain persons other than a company. It is provided that where a person is a unit located in an International Financial Services Centre (IFSC) and derives its income solely in convertible foreign exchange, it shall be liable to pay income tax on total income at the rate of 9% and where the person is a co-operative society, it shall be liable to pay income tax on total income at the rate of 15%.
GOODS AND SERVICES TAX ACT
- Additional Conditions to Avail Input Tax Credit
The Finance Act has made various changes in the provision relating to Input Tax Credit. Section 16(2)(aa) has been inserted where the new provision titled ‘Communication of details of inward supplies and input tax credit’ prescribes the manner, conditions and restrictions for availing ITC. The conditions includes:-
- The Tax invoice details and debit note issued by the registered supplier are electronically furnished by him by filing the statement of outward supplies i.e. Form GSTR-1.
- The details of the respective tax invoice or debit note should have been communicated by the supplier to the recipient in the prescribed manner.
- Return Filing Measures Become Stringent
In Section 37, sub-section 4 has been inserted which has made stringent measures for return filing. As per the amended provision, the taxpayer shall not be allowed to furnish the details of outward supplies for a tax period if the same remains pending for any previous tax period.
- Withdrawal of the Concept of Provisional Input Tax Credit
Provisional Input Tax Credit means ITC that is claimed by buyers in the GST returns for which invoice is not reported or yet to be reported by the suppliers with the government. The Finance Act has completely withdrawn this concept of provisional ITC from the Goods and Services Tax law by omitting the provision of availment of ITC on provisional basis.
- Freely Transfer of Cash Balance to the Electronic Cash Ledger of Distinct Person
To ease taxpayers’ hardships, the Finance Act amended the provision of payment of tax, interest, penalty, and other amounts. Now, taxpayers can freely transfer amounts available in the electronic cash ledger under the CGST Act to the electronic cash ledger under the Central Goods and Services Tax Act (CGST) or Integrated Goods and Services Tax Act (IGST) of a distinct person, where a distinct person is a person that has a different Goods and Services Tax Identification Number (GSTIN) but is under a single Permanent Account Number (PAN).
- GSTIN Cancellation Rules to Become more Stringent in cases of Non-Filing of Returns
The Finance Act amended the provision of the CGST Act to provide stricter rules for cancellation of GST registration in the event of non-filing of returns. For composition taxpayers, their GST registration can be cancelled from the date as may be prescribed by the authority for non-filing of their annual return beyond three months from the due date of furnishing the return. For regular taxpayers, their GST registration can be cancelled for non-compliance for such consecutive tax periods as may be prescribed by the government from time to time.
- Extension of the Power of Proper Officer
Clause 85 seeks to amend clause (34) of section 2 of the Customs Act which has widened the powers of Proper Officer by expressly allowing the assignment of functions to officers of customs by the Central Board of Indirect Taxes and Customs (CBIC) or the Principal Commissioner of Customs or the Commissioner of Customs under the new provision of the Customs Act, 1962. It is further provided that in the event of necessity, 2 or more officers of customs, can concurrently exercise powers and functions.
- Valuation of Goods
Another amendment has been made in the provision of valuation of goods to include provisions for rules enabling CBIC to specify the additional obligations of the importer in respect of a class of imported goods, whose value is not being declared correctly, the criteria of selection of such goods, and the checks, including the circumstances and manner of exercise of such checks, in respect of such goods.
- Protection of Data
Section 135(AA) has been inserted which has introduced a new concept in the Customs Act so as to protect the import and export data submitted to the customs by the importers or exporters of such goods unless provided by the law
In pursuant to it, he shall be punishable with imprisonment for a term which may extend to 6 months, or with fine which may extend to Rs. 50,000, or with both.
Section 99 of the Finance Act has amended the 4th Schedule of the Central Excise Act, 1944 to insert 2 new tariff items relating to fuel blends i.e. E12 and E15 fuel blends, conforming to the new BIS specification that has been issued for Ethanol Blended Petrol with percentage of ethanol up to (E12) and (E15)% respectively. This will align the 4th Schedule with the similar proposed amendment in the sub-heading 2710 12 (Light Oils and preparations) in the First Schedule to the Customs Tariff Act, 1975.
In order to promote blending of Motor Spirit (commonly known as Petrol) with ethanol/methanol and blending of High Speed Diesel with bio-diesel, an additional Basic Excise Duty of Rs. 2 per litre on Petrol and Diesel, intended to be sold to retail consumers without blending, would be levied with effect from the 1st day of October, 2022.
RESERVE BANK OF INDIA ACT
According to Section 125 clause (a), Section 2(aiv) has been introduced via which a new definition of bank note has been added under the Reserve Bank of India Act, 1934 which states that bank note means a bank note issued by the Bank, whether in physical or digital form.
The Finance Act has further clarified that the provisions of Section 24, 25, 27, 28 and 39 relating to the denomination of notes, the form of bank notes, re-issue notes, recovery of notes lost, stolen, mutilated or imperfect and the obligation to supply different forms of currency under the Reserve Bank of India Act, 1934, shall not be applicable to the bank notes issued in the digital form by the Bank.
The introduction of a specific tax regime regarding virtual digital assets is a good indication of bringing the digital currencies and ecosystem under the ambit of regulatory mechanism. The amendments in the indirect taxation laws are to overcome the challenges in compliance processes and to strengthen the ease of doing business. Further, the amendment to extend the timeline for availment of ITC, issuance of tax invoices, debit notes or credit notes, and rectification of errors in return or tax collected at source statements furnished will also facilitate taxpayers.
Another welcoming amendment is regarding the easy transfer of the amount available in the electronic cash ledger of a registered person to the electronic cash ledger of its distinct person. It is right to say that the Finance Act is aimed to further the growth of the economy to rise with a simpler and predictable tax regime which will simplify the tax system, promote voluntary compliance by taxpayers and reduce litigation thereby enabling a stronger economy and a stronger nation.