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Reduction in alternate minimum tax rate and surcharge for cooperatives announced

In view of the pandemic, Finance Minister Nirmala Sitharaman, in her fourth Union Budget presented on February 1, 2022, chose not to change the existing income tax slabs.  

“We have not increased tax, not even a single paisa,” the FM said at the post-budget conference. “We took care, as instructed by the Prime Minister, to ensure that no additional tax burden is imposed on citizens during the difficult times of Covid,” she added. 

Unveiling the Budget earlier in the day, the FM proposed some direct tax changes, including a reduction in the surcharge on co-operative societies. Some of the key changes are as follows: 

New updated return 

Some taxpayers may realize that they have committed omissions or mistakes in estimating their income for tax payment. To provide an opportunity to correct such errors, the FM proposed a new provision permitting taxpayers to file an updated return on payment of additional tax. This updated return can be filed within two years from the end of the relevant assessment year.  

Presently, if the department finds out that some income has been missed out by the assessee, it goes through a lengthy process of adjudication. Instead, with this proposal now, there will be a trust reposed in the taxpayers that will enable the assessees to declare the income that they may have missed out earlier while filing their return. It is an affirmative step in the direction of voluntary tax compliance, Sitharaman pointed out. 

Reduction in surcharge for cooperatives  

Currently, cooperative societies are required to pay alternate minimum tax at the rate of 18.5%. However, companies pay the same at the rate of 15%. To provide a level playing field between cooperative societies and companies, the Budget has proposed to reduce this rate for the cooperative societies also to 15%. Also, the surcharge on co-operative societies will be reduced from the present 12% to 7% for those having a total income of more than Rs 10 million and up to Rs 100 million. This would help in enhancing the income of cooperative societies and their members who are mostly from rural and farming communities. 

Incentives for startups  

Eligible startups established before March 31, 2022, had been provided with a tax incentive for three consecutive years out of ten years from incorporation. Given the pandemic, the FM has proposed to extend the period of incorporation of the eligible startups by one more year, that is, up to March 31, 2023, for providing such tax incentives.  

Incentives to new manufacturing entities 

To establish a globally competitive business environment for certain domestic companies, a concessional tax regime of 15% was introduced by the Union government for newly incorporated domestic manufacturing companies. Sitharaman has proposed to extend the last date for commencement of manufacturing or production under section 115BAB by one year to March 31, 2024. 

Tax incentives to IFSC  

Income of a non-resident from offshore derivative instruments, or over the counter derivatives issued by an offshore banking unit, income from royalty and interest on account of lease of ship and income received from portfolio management services in IFSC shall be exempt from tax, subject to specified conditions. 

Rationalization of surcharge  

In the globalized business world, there are several works contracts whose terms and conditions mandatorily require the formation of a consortium. The FM has proposed to cap the surcharge of these AOP’s at 15%. The surcharge on long term capital gains arising on transfer of any type of assets will be capped at 15 percent. This step will give a boost to the startup community. 

Relief to persons with disability  

The parent or guardian of a differently-abled person can take an insurance scheme for such person. The present law provides for a deduction to the parent or guardian only if the lumpsum payment or annuity is available to the differently-abled person on the death of the subscriber, that is, parent or guardian. 

Parity between government employees  

To provide equal treatment to both the central and state government employees, the Budget proposes to increase the tax deduction limit from 10% to 14% on employer’s contribution to the NPS account of state government employees as well. This would help in enhancing the social security benefits of the state government employees and bring them on par with central government employees. 

Rationalizing TDS provisions  

As a business promotion strategy, there is a tendency for businesses to pass on benefits to their agents. The Budget includes a proposal to provide for a tax deduction by the person giving benefits if the aggregate value of such benefits exceeds Rs 20,000 during the financial year.

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