BDO India: Countdown to the Budget 2022 - 23_Vol-1

As we begin the run-up to the India Union Budget 2022, BDO India is pleased to share key expectations from this year’s Budget announcements, in our Pre Budget campaign: Countdown to the India Union Budget 2022 (a two-volume series)

The last year has been a mixed bag for India, with the country seeing resumption in economic activity as well as witnessing the chaos caused by detrimental waves of the COVID-19 pandemic. Businesses have embraced hybrid work models and the year saw the addition of several Indian start-ups in the unicorn club. Along with the upward trend in stock markets, cryptocurrency and NFT have been seeing increased traction and await much-required clarity.

The proposals from Budget 2022 are expected to bring in much-needed relief to the taxpayers, especially as it is being announced at a time when the country is battling the third wave of the COVID-19 pandemic.

Some of the proposed policies that could be part of the upcoming Budget are outlined below: 

1. Taxation of Cryptocurrency: 

Clarity around the taxation of cryptos is a key expectation from this year’s budgetary proposals. In this regard, Union Budget 2022 could cover the following:

• Cryptos may be taxed either as a capital asset or business income depending on the intention for which they have been purchased. Where they are treated as capital assets, the indexation benefit may be made available as well. Also, where they are used to make purchases for business, the FMV of the acquired property/goods should be entitled to a tax deduction.
• It is expected that a clarity on taxation of crypto will be brought by this year’s budget even if the Crypto bill misses this Parliament session. Budget proposals may provide a direction to the thought process which the legislature has regarding cryptocurrency.
• While ‘money’ and ‘securities’ are outside the ambit of the GST levy, special consideration is required to classify ‘Cryptos’, which are akin to ‘money’. Levy of GST would be possible if the crypto is ‘goods’ or ‘service’, thereby trading of cryptos or its use as a ‘consideration’ for a business transaction would stand exposed to tax. Suitable amendments to GST law are expected to throw light on liability to GST in the hands of exchanges and intermediaries, who facilitate the transactions.

2. Start-up related

• The proposal to defer the collection of tax on ESOPs exercised by employees of 'eligible start ups' (i.e., start-ups set up on or after 1 April 2016 approved by the Inter-Ministerial Board for claiming benefit under section 80-IAC) will benefit a small portion of 'eligible start-ups'. This will result in leaving out employees of a majority of the start-ups registered with The Department for Promotion of Industry and Internal Trade (DPIIT). With a view to provide a level playing field to all start-ups, it is expected that the Union Budget 2022 may extend the ESOP deferral to ALL the Indian start-ups registered with the DPIIT.
• The benefit of carry forward of losses in case of amalgamation may be extended to all the start-ups irrespective of the sector in which they operate.

3. Individual taxation related

• With work from home/ hybrid working now becoming a common norm, the current limit of standard deduction of INR 50,000 may be increased to INR 150,000. Alternatively, a certain percentage (say 20% of Basic) may be allowed as a standard deduction to all the employees.
• Alternatively, a new allowance (say WFH allowance) linked to a certain percentage may be introduced to exempt a certain portion to meet office-related expenses (e.g., electricity, telephone etc.) incurred due to working from home.
• With rising infections, household medical expenses have increased. Hence, people have started taking higher medical policies to meet the increased outflow towards medical expenses. The existing limit prescribed under section 80D may be increased by INR 50,000.
• While the new tax regime was introduced, it is seldom beneficial to taxpayers who are claiming various deductions (e.g., HRA, standard deduction etc.) and hence, the new taxation regime is not popular among many taxpayers. With a view to make it popular, the Union Budget may extend the deduction contained in Chapter VI-A to taxpayers who would like to be governed by the new tax regime.

4. COVID related expenses

• It has become essential for every business to extend medical facilities, health insurance, etc. to all employees to compensate for any financial loss which an employee may suffer on account of infection and rise in the spread of COVID-19.  Also, making available personal protective equipment (PPE) kits, sanitisers, masks, and other such goods, free of cost to the workforce is the need of the hour to combat the spread of the virus. ITC on all these items is sought to be denied in the guise of supplies attributed to employee personal consumption and not in the course of furtherance of business.
• An appropriate amendment to the law is required to remove restrictions on ITC on inward supplies including premium on health insurance to employees.
• Suitable clarification would be required to allow the ITC on items purchased by the employees as part of the ‘Work from Home’ initiative, as such facilities are nothing but an extension of business operations and its furtherance.

Conclusion

As with each passing year, the expectations from Budget 2022 remain high. With the country still reeling under the impact of the pandemic, both economically as well as emotionally – it is expected that this year’s budget would bring in empathetic policy support for the lives and livelihoods of those facing unprecedented challenges