Budget 2022: A booster for the digital economy

Presenting her fourth Union Budget on February 1, Finance Minister Nirmala Sitharaman noted the role of our country's resilience in the recovery of the economy. Growth this year is expected to be the highest amongst major economies at a reassuring 9.2%. 

From introducing e-passports and establishing digital universities to using drones for agriculture and rolling out a National Digital Health ecosystem, the focus of the government is indeed on sunrise sectors and the digital economy.

Promoting digital economy, fintech and technology-enabled development is one of the primary goals of the government to attain the "Amrit Kaal" vision of India@100.   

Also Read: India's digital rupee likely to debut by early 2023

The financial support for the digital payment ecosystem announced in the previous Budget continues in 2022-23, encouraging the adoption of digital payments. 

The government has also announced the introduction of digital rupee using blockchain which will be issued by the Reserve Bank of India (RBI) during the next financial year.

This measure would boost the digital economy by easing transactions, lowering costs and enabling efficient regulation. India would likely be amongst the first of the large economies to introduce such a measure. 

Further, the government has also sought to tax gains on the sale of virtual digital assets including cryptocurrency at 30%, without any deduction except for the cost of acquisition.

Loss on sale of such assets would not be allowed to be set off against any other income nor such loss would be allowed to be carried forward.

Also Read: Budget 2022: From digital currency to crypto tax; here are the key highlights 

Also, payers for such assets would be required to deduct tax at 1%, with exclusion for individuals not liable to a tax audit. Gift of such digital assets in excess of Rs 50,000 is proposed to be taxable in the hands of the recipient.  

A welcome move for promoting the rapidly growing start-up culture is the extension of the sunset date for eligibility to the profit linked corporate tax incentive for startups. 

In view of the pandemic, the period of incorporation is proposed to be extended by a year to March 31, 2023. Also, the cap on 15% surcharge would reduce long-term capital gains tax from 28.5% to 24%, which could benefit startup founders. 

In a move to enable states to become partners in 'Development of Enterprise and Service Hubs', the Special Economic Zones Act will be replaced by new legislation. This is likely to make exports by existing and new industrial enclaves more competitive. 

Digitalisation continues to gain momentum for futuristic and inclusive growth. Given the widespread impetus on new-age technology, we are looking toward a promising future for Digital India. 

(Ravi Mahajan, Khushroo Patel and Tina Punwani - Ernst & Young LLP.)