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Everything About Income Tax Changes in the Union Budget

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As always, the nation’s eyes were on the Union Budget for FY 2022-23, presented by Finance Minister Nirmala Sitharaman on February 1. While there were no changes to direct income tax slabs and tax rates, the government did introduce various proposals to directly address certain financial transactions, promote voluntary compliance and simplify the overall tax structure.

As an individual taxpayer, below are some of the key proposals that you should take note of.

Tax relief on financial assistance received for medical treatment / death due to COVID-19

In a bid to alleviate the suffering brought on by the pandemic, the government has offered a tax exemption on any financial assistance received from an employer, family or friends to cover an individual’s COVID-19 treatment expense. The said tax relief will be available for expenses incurred from FY 2019-20 onwards. 

In the event a taxpayer’s family receives financial aid to cope with the challenges arising from the untimely death of the earning member due to COVID-19, such aid will be exempt from the gamut of income tax. However, there are caveats. Any amount received from the taxpayer’s employer as ex-gratia payment is fully exempt without any limit. Cumulative funds received from any other family member or well-wishers are exempt up to Rs 10 lakh.

Digital assets to be taxed at 30%

Virtual digital assets, such as cryptocurrencies and Non-Fungible Tokens (NFTs), will be treated like any other asset class. Any gains in these assets will be taxable at 30% irrespective of short- or long-term holding. Other than the cost of acquisition, no other deductions or exemptions will be allowed. Investment losses, if any, cannot be offset against other income or capital gains. Transfer of said digital assets by way of sale or as a gift will also attract TDS of 1% on the consideration value.

State Government’s contribution to employees’ NPS to be aligned with that of Central Government employees

Employees of State Governments will be able to claim a higher tax benefit of 14% (up from 10%) in lieu of the employer’s contribution to the National Pension Scheme (NPS) under Section 80CCD of the Income Tax Act. The amendment will take effect retrospectively from 1 April 2020 and apply to all assessment years starting AY 2020-21 to ensure state government employees do not have to incur additional tax liabilities on contributions made in excess of 10% during the period.

Window for taxpayers to rectify errors in their ITR

Taxpayers who have errors or omissions in their income tax returns will be given a one-time opportunity to rectify any mistakes in estimating their tax liability. Assesses can file updated returns and pay the appropriate tax amount within two years of the relevant assessment year.

Tax incentives for start-ups extended till March 2023

Affirming that start-ups are the growth drivers of the Indian economy, the Finance Minister proposed to extend the period of incorporation for eligible startups who can avail of tax breaks. Earlier startups incorporated between April 1, 2016 and  March 31, 2021 could avail of a 100% tax rebate on profits for any three of the ten years since incorporation. Acknowledging the manifold growth in successful startups, the benefit has been extended to all start-ups that fulfil the eligibility criteria till 31 March 2023.

Surcharge on LTCG to be capped at 15%

Investors of long-term capital assets, such as real estate, unlisted shares, artefacts and collectables, etc., will be able to benefit from the rationalisation of the surcharge rate applicable on Long-Term Capital Gains. Previously the surcharge rate was 25% on income up to Rs 2 crore and 37% for income above Rs 5 crore. Bringing the surcharge down to 15% will make the overall tax effect comparable to other equity assets and possibly drive more investments in diverse capital assets.

Tax relief on insurance premiums for persons with disability
The Finance Minister introduced a new tax SOP for parents or guardians of disabled persons who have purchased a life insurance or annuity plan with the latter as a beneficiary. The buyer will be able to claim additional deductions under Section 80DD up to Rs 75,000 or Rs 1,25,000, depending on the severity of the disability. Previously, deductions were available only after the death of the subscriber. However, with Budget 2022, the rules will be extended to include any proceeds received during the subscriber’s lifetime, as long as they are over the age of 60.

Read more on the details of Welfare Schemes Announced in the Union Budget 2022-23.


* The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own

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