Budget 2022: A blueprint from India @75 to India @100

The global economy has struggled in the last two years due to the COVID-19 pandemic. Repeated pandemic waves, supply-chain disruptions, and, more lately, inflation have made policy shaping a tricky task. However, India’s capital markets have performed admirably, letting Indian firms boost record capital, encourage a broader start-up ecosystem, etc. More importantly, the financial sector is sufficiently capitalized, and the overhang of Non-Performing Assets seems to have enhanced materially, despite the pandemic’s delayed effects. Nevertheless, all of this has hindered India’s ambition for becoming a five trillion-dollar economy.

Macro Aspects of the Budget

Budget 2022-23 at first glimpse seems to be growth-oriented, with a focus on capital spending and a conservative fiscal deficit of 6.4 percent associated with measures to minimize regulatory costs and improve ease of doing business. Given the magnitude and interconnectedness of the Union budget, infrastructure expenditure has been a significant focus in line with earlier Budgets. Overall expansion and development of the infrastructure sector would help create a multiplier effect besides emphasizing healthcare services to marginalized citizens.

The National Digital Health Ecosystem will assist in developing a robust platform for handling all health information and providing universal access to records. Given the Covid-19 pandemic, the budget has also prioritized Telemental Health, a positive move forward to cover a wider population.

With the PM Gatti Shakti plan, the government’s ongoing commitment to national transportation infrastructure will enhance multimodal connectivity, letting smooth freight movement while reducing logistics and transaction costs. Similarly, the budget has included measures to facilitate specified sectors (such as hospitality and related enterprises) and become more resilient, competitive, and efficient for the MSMEs.

Direct Tax Measures

Key reforms incorporate the option to file an “updated” return; incentives to start-ups, cooperative societies, GIFT city; broadening the scope of taxation on the transfer of virtual digital assets; litigation management for redundant appeals filed by the Tax Department and a new provision for non-residents to claim refunds by declining tax liability.

To encourage Voluntary Compliance and build a strong framework of reporting taxpayers’ transactions, the budget has proposed an opportunity to rectify errors, including under-reporting on additional tax payments. Additionally, such revisions can be filed within two years from the end of the relevant assessment year instead of the present one-year limit for revision of return.

In recent years, virtual digital assets have increased in popularity, and the volume of trade in such digital assets has grown significantly. Moreover, a market is developing where payment for a virtual digital asset can be transferred using another virtual digital asset.

 As a result, a new mechanism for taxing such virtual digital assets has been proposed. The litigation management aims to avoid redundant appeals by the tax administration. The budget has proposed that where an issue in the case of a taxpayer is identical and pending in appeal before the jurisdictional High Court or the Supreme Court, filing of a repetitive appeal shall be deferred until the courts settle such issue. This allows to reduce repeated litigation between taxpayers and unclog litigation machinery.

For a non-resident disputing tax liability, the budget has proposed a new provision to allow filing a tax refund and challenging withholding tax orders. In addition, where the department denies the application, a non-resident can now file an appeal before the Commissioner (Appeals).

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