Massive capex budget, a bold move in 'Amrit Kaal' for Aatmanirbhar Bharat  

Union Budget 2022 was a budget with a big picture focused on growth, sustainability, and employment generation. It’s a proposition to lay out huge infrastructure and promote capital expenditure; certainly, a step in the right direction to support the economy. 

The extension of one year towards start-up incentives and corporate tax incentive of 15% coupled with the capex outlay of Rs 7.5 lakh crore (being 35.4% higher as compared to the previous year) clearly demonstrates the vision and roadmap to long term stable policy.   

Despite high expectations on the tax front, it’s a mixed approach keeping in mind the objective of ease of doing business and compliance.   

While the legislation on digital assets is a work in progress, India is one of the handful of countries that have made a move to introduce Digital Rupee powered by blockchain technology. 

Given the risks surrounding the cryptocurrencies that India has been advocating, a taxation scheme for crypto/NFT has been proposed, where tax @ 30% (plus surcharge & cess) on the transfer of Virtual Digital Assets (VDA) without any deduction in respect of any expenditure (other than the cost of acquisition) or allowance or set-off of any loss. 

The intention seems to tax defined cryptocurrency/NFTs and not any product or service generated out of blockchain technology; however, the enactment of the legislation on VDA could clarify this better.  

The government's move of allowing taxpayers to file ‘updated return’ with omitted income on payment of additional tax is desirable, the cost attached in the form of tax @ 25%/ 50% at the time of filing such tax return may make such a scheme less attractive.    

To curb further tax evasion, the Budget proposes to deny set off of brought forward losses against undisclosed income detected during search proceedings.   

The surcharge rate of AOPs (consisting of only companies as members) is now proposed to be capped at 15% from the existing 37%, giving a boost to capex sector where normally consortiums are formed to undertake the projects.   

Due to contrarian views in deduction of Health & Education Cess against business income, the Budget proposes to disallow such deduction considering the same to be a part of tax.   

Further, with the objective of reducing the number of repetitive appeals or number of tax appeals, a scheme is proposed to not file appeals on identical questions of law pending before Jurisdictional High Court or Supreme Court is a welcome move.  

Off course, given the nuances of tax litigation and the complexity of various tax issues involved in each appeal would call for a wider and large-hearted scheme to ensure that such a scheme is practically implemented.  

While at this stage, there doesn’t seem to be any retroactive amendments, the tax proposals do have amendments to reverse certain judicial pronouncements/settled positions. Having said that there were quite a few relevant representations by the industry which do not find any reference/amendments with respect to restructuring, extending tax regimes (as applicable to the manufacturing sector) to the services sector, etc. 

There will be quite a few representations before the tax proposals are enacted, we hope those representations find favour that will go a long way to facilitate ease of doing business and creating a stable tax regime. This will also promote voluntary compliance by taxpayers and reduce litigation. 

(The author is EY India partner. Co-authored with Seema Choudhary, Tax manager, EY.)