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Highlights: Union Budget of India 2022-23

Powering sustained growth

Sanjeev Krishan, Chairman, PwC in India

Budget 2022 paves the way for India’s formal entry into the digital currency domain by introducing distributed ledger technology enabled digital currency and making it a legal tender.

Sanjeev Krishan, Chairman, PwC in India

Union Budget 2022–23, presented by the Finance Minister, builds on the vision set out in the previous budgets and provides a blueprint for steering the economy towards a sustained high-growth trajectory in the 25-year-long lead-up to India @100.

The budget provides a framework for growth by focusing on four key themes: (i) public investment for building modern infrastructure under PM Gati Shakti; (ii) inclusive development; (iii) productivity and investment, sunrise opportunities, energy transition, and climate action; and (iv) financing of investment. Additionally, the Finance Minister has announced several tax and regulatory measures which should go a long way towards removing difficulties faced by taxpayers, reducing litigation, providing certainty and widening the tax base.

Key amendments to the Finance Bill, 2022 – Enacted

The Finance Bill, 2022 (Amended Bill) was passed by the Lok Sabha on 25 March 2022 with amendments to the original Bill that was tabled before the Lok Sabha on 1 February 2022. Subsequently, the Bill was affirmed by the Rajya Sabha without any further amendments and has now been enacted.

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Union Budget 2022-23 Analysis (PDFs)

Powering sustained growth: Union Budget 2022-23

This Budget has provided a blueprint for fueling India’s aspirations and expectations as the country commences its journey towards India@100. Explore our analysis and understand the implications on your business.

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Union Budget 2022-23: Key proposals for the Financial Services Sector

The proposals, announcements and amendments impacting various sectors demonstrates the Government's intent to develop digital infrastructure. 

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Vivek Prasad, Markets Leader, weighs in on the implications of the Union Budget 2022-23

"Budget 2022 highlights the government’s thrust on building a robust foundation for a pro-development, growth-oriented economy and provides a blueprint for a #FitForFuture India," says PwC's Vivek Prasad.

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Insights

Key announcements and Impact

  • The budget has announced the ‘National Tele Mental Health Programme’ which will include a network of 23 tele-mental health centres of excellence, with NIMHANS being the nodal centre.

  • Under the Ayushman Bharat Digital Mission, an open platform consisting of digital registries of various health providers and facilities will be rolled out. This National Digital Health Ecosystem will also include aspects around unique health identity and consent framework, and will assist in enabling universal access to health facilities.

  • Two hundred thousand Anganwadis (rural child care centres) will be upgraded to ‘Saksham Anganwadis’ with better infrastructure and audiovisual aids. They will be powered by clean energy and thus provide an improved environment for early child development.

  • Additional spending of INR 600 bn under the ‘Har Ghar, Nal Se Jal’ scheme to cover 38 m households.

Key takeaways

  • The pandemic revealed a silent mental health epidemic globally. It is estimated that at least one in eight Indians has a mental affliction. Mental health was hitherto an ignored area. The use of telemedicine to diagnose and treat such patients has proved to be highly effective, given the unobtrusive nature of the interaction which also maintains patient privacy. Given the shortage of mental health professionals, especially in rural areas, telemedicine will greatly enhance accessibility for patients requiring psychiatric help. Funding in Indian mental health start-ups has seen exponential growth of 4-5x in the last year.

  • The National Digital Health Ecosystem  is an extension of the various initiatives announced under the Ayushman Bharat Digital Mission in the last couple of months. The digital health register will help create a comprehensive interoperable network to store and fetch health records. An open platform will encourage wider adoption and innovation encompassing start-ups, ensuring UPI-like adoption. It will be key to extend the coverage to the million-plus providers in the country and bring them on this platform. A start has to be made by integrating existing registries. This will need centre-state cooperation, health being a state subject.

  • One out of five start-ups in India has a healthcare linkage. The benefits in this budget will create an enabling environment for them to increase accessibility and affordability for the larger population.

  • Providing clean water under ‘Har Ghar, Nal Se Jal’ will help reduce the burden of communicable disease which still remains a major cause of daily-adjusted life years (DALY) (in the country. The prevalence of water, sanitation and hygiene (WASH) related diseases in India is greater than 5% for all outpatient visits and  hospital admissions.

  • Anganwadis are at the forefront of delivering healthcare, especially in rural areas. Upgrading these Anganwadis will enable last-mile delivery of quality care.

  • Extension of the concessional tax regime of 15% to newly incorporated domestic manufacturing companies will give a boost to domestic manufacturing in the medical devices and technology space.

 

By Joydeep K Roy, Partner and Leader, Insurance, PwC India

The insurance industry supports all other industries, provides risk mitigation for businesses, offers long-term savings and protection to families, and provides important long-term capital to infrastructure projects. Hence, the budget announcements have a direct impact on industry as well.

  1. Overall growth of infrastructure projects will automatically increase premiums for these projects[1] [2] . But the promulgation and introduction of surety bonds will open up a fresh stream of insurance revenue and capital and can even invite many specialised insurance companies to come to India with foreign capital.
  2. With the introduction of a core banking system (CBS) in post offices, they would also be able to provide a much-needed avenue for deep rural penetration of microinsurance, if properly implemented from the beginning as a strategic initiative. Postal insurance schemes should immediately be brought under the regulatory landscape like all other PSUs and then the real penetration can be measured and augmented suitably.
  3. Introduction of more technology in agriculture will lead to an increase in data quality and timeliness of its utilisation, leading to a much-needed impetus to agri insurance.
  4. India is a land of SMEs and MSMEs, with a lion’s share of the GDP being generated and managed through these small businesses. However, these are not really part of the formal economy, and reforms such as health and life benefits for employees, premises insurance, industrial injury and liability insurance should be looked at as an integral part of operations.
  5. All developed economies have a lower cost of distribution, but India needed a higher loading which would enable a whole profession of financial distributors to take products to the financially excluded. With the digital revolution, buying cycles and demand generation are changing considerably, and a regulatory push towards reducing distribution cost is only to be expected. However, caution needs to be exercised to avoid any drastic step which may hurt the entire drive for increased insurance penetration.

Key announcements and Impact

  • Continued focus on electric mobility with the announcement of a battery swapping policy and clean mobility zones in cities will push increased adoption of EV.
  • Commitment to expand highways by 25,000 km will be a demand catalyst for the commercial vehicle (CV) segment.
  • Enhanced spend on rural infrastructure and large outlay for MSP will ensure further rural economic growth. This will support demand for the two-wheeler and tractor segments in particular.
  • Extension of ECLGS to MSMEs will ensure continued liquidity for small businesses which will have a positive impact on capital purchases, including CVs.

Key takeaways

  • The PM Gati Shakti National Master Plan that focuses on multi-modal connectivity will reduce logistics cost and improve the transport network. This will have an indirect impact on the CV industry, with a positive impact on heavy trucks and light CVs.
  • Additional excise duty of INR 2/litre on unblended fuel to be imposed from 1 October 2022. This will encourage blending of fuel and we expect OEMs to further invest in clean and blended fuel engines.


Digital Rupee
RBI to introduce Digital Rupee using blockchain technology in 2022–23 Digital Rupee, a Central Bank Digital Currency, is expected to promote transparency, traceability and convenience. It can be interoperable with other global digital currencies and issued as legal tender backed by the Central Government in lieu of currency notes and coins.
Virtual digital assets The Government has proposed to launch a scheme for the taxation of virtual digital assets (e.g. cryptocurrencies, NFTs). Income from virtual digital assets to be taxed at 30%. Losses from the sale of virtual digital assets cannot be offset against other income. Gifts of cryptocurrencies to be taxed at the receiver’s end. This move formally brings virtual digital assets such as cryptocurrencies and non-fungible tokens under the tax net, thereby increasing the probability of virtual digital assets being recognised by the government. It also accelerates the probability of the crypto bill being formulated and approved. 
Financial support for the digital payment ecosystem  The financial support for the digital payment ecosystem announced in the previous Budget will continue in 2022–23. Last year, the FM had earmarked INR 1,500 crore for a proposed scheme that will provide a financial incentive to promote digital modes of payment in order to give a further boost to digital transactions. Part of this can be used for reimbursement of zero MDR fees for UPI and RuPay debit transactions (P2M).
Anytime–anywhere post office savings In 2022, 100% of 1.5 lakh post offices will shift to the core banking system. Getting the post offices on the core banking system is expected to increase access of these accounts to digital channels like net banking, mobile banking and ATMs, thereby increasing the number of digital payment transactions in the country.

Digital banking units
75 digital banking units to be set up across 75 districts The Government has proposed to set up 75 digital banking units in rural areas to enable all sections of society to get the benefits of digital payments innovation. This is expected to be in the form of digital kiosks which will be staffed and other banking services that can be provided.
Online e-bill system Government to introduce a completely paperless, online e-bill system to manage payments As a further step to enhance transparency and to reduce delays in payments, a completely paperless, end-to-end online e-bill system will be launched for use by all Central ministries for their procurements. The system will enable suppliers and contractors to submit their digitally signed bills and claims online and track their status from anywhere. There is a possibility of linking the payment gateway to this system to facilitate ease of payments fund flow.
Gujarat International Finance Tec-City (GIFT City) – payments business set-up World-class foreign universities and institutions will be allowed in the GIFT City to offer courses in various areas such as financial management and FinTech. To facilitate the availability of high-end human resources for financial services and technology, domestic regulations will not apply to these institutions. Government support for the development of a FinTech hub in GIFT City would provide smaller digital payments technology firms with a platform to explore and innovate more cost-efficient and easily adaptable financial products.

Tax insights

Promoting voluntary tax compliance and reducing tax litigation

  • Deferment of filing appeal by Revenue for an identical issue involving substantial question of law which is pending before the jurisdictional High Court/Supreme Court
  • Provision for filing updated income tax return within 2 years from end of relevant AY on payment of additional tax of 25%/50% on the tax and interest due on additional income subject to prescribed time limits

Tax on virtual digital assets

  • Introduction of a new scheme for taxation of virtual digital assets @ 30% without allowing any deduction except for cost of acquisition
  • Tax deducted at source applicable at the rate of 1% on transfer of virtual digital assets subject to prescribed threshold limit

Reliefs to start-up/ manufacturing companies

  • Start-ups incorporated upto 31 March 2023 eligible for tax incentives
  • New manufacturing companies commencing manufacturing/production upto 31 March 2024 eligible for a lower tax rate of 15% under section 115BAB

Provisions relating to deduction of business expenditure

  • Clarification regarding non-deductibility of education cess and surcharge as business expenditure retrospectively from 1 April 2005
  • No deduction allowed in respect of expenditure incurred on providing any benefit/perquisite which is in violation of law/regulation/rules/guidelines or to compound an offence, prohibited by law in/outside India
  • Provisions of section 14A to apply irrespective of the fact whether income accrued/arisen/received during the year

Change in the rate of tax/surcharge

  • Rate of surcharge in the case of certain association of persons to be capped at 15%
  • Rate of surcharge in the case of long-term capital gains on transfer of any assets restricted to 15%
  • Withdrawal of concessional tax rate of 15% on dividend received from foreign companies
  • No change in personal tax rates/slabs

Other tax updates

  • A person providing any benefit/perquisite arising from carrying out any business or profession u/s 28(iv) to deduct tax at source @ 10% on an amount exceeding INR 20,000
  • Prosecution provisions extended for non-compliance of tax collected at source

Goods and Services Tax

  • GST collections more than INR 1 lakh crore consistently since July 2021, with collections reaching the highest ever in January 2022 – upto INR 1.41 lakh crore achieved on account of rapid post-COVID economic growth and nation-wide drive against GST evaders and fake bills
  • Time limit to avail input GST credit and issuance of credit notes extended from 30 September to 30 November of the following financial year
  • Two-way communication process in return filing (between outward and inward supplies) initially envisaged under GST law now done away with
  • Amendment to allow transfer of amount available in electronic cash ledger between GST registrations of the same legal entity
  • Amendment to provide for levy of interest on input tax credit wrongly availed and utilised retrospectively from 1 July 2017
  • Extended time provided upto November 30 for rectification of errors in TCS return
  • GST compensation cess to be extended and would be applicable only till 30 June 2022

Special Economic Zones

  • SEZ Act to be replaced with a new legislation which will enable states to be partners in the development of the SEZ sector. The new legislation would focus on optimal utilisation of available infrastructure and augmentation of exports.

Customs duty

  • The changes in customs duties are made mainly with the objective of domestic capacity creation, providing a level playing field to MSMEs, easing the raw material supply-side constraints, enhancing ease of doing business and enabling policy initiatives such as PLIs and phased manufacturing plans.
  • Around 350 customs exemptions are being withdrawn and more than 40 customs exemptions relating to project imports and capital goods are proposed to be gradually phased out.
  • Legislative changes are being made to the powers and functions of an officer of customs so as to counter the Supreme Court ruling in the case of Canon India which held officers of the Director of Revenue Intelligence as not to be proper officers to undertake customs proceedings.
  • Amendment to provide that Advance Ruling under customs to be valid only for 3 years
  • Publishing of information submitted by importers and exporters before officers under customs law has now been made an offence under the customs law with an intent to protect such data.
  • To encourage paperless processing, it is proposed to use a common customs portal to serve notices, orders, etc., and act as a one-point digital interface for trade to interact with customs.
  • Exemptions are being introduced for duty-free imports by the handicraft, apparel and leather sector when exported within six months.
  • Customs tariff rates for import of textiles, chemicals and metal are being simplified by aligning the tariff rates with the existing exemption notifications, leading to withdrawal of such exemption notifications.
  • Import duty on certain inputs for manufacture of mobile phones, chargers and adapters is being reduced to boost domestic manufacture of mobile phones.
  • A phased manufacturing plan is being introduced for granting exemptions on import of certain inputs for use in the manufacture of wrist wearable devices, hearable devices and smart meters.
  • Import duty is being reduced on certain chemicals such as sodium cyanide, methyl alcohol and acetic acid.
  • Anti-dumping duties and CVD on certain steel products are being revoked considering the high cost of steel.
  • Unblended fuel to be subjected to incremental excise duty of INR 2 per litre to encourage use of blended fuel.

  1. Gains from virtual digital assets (VDAs), viz. crypto, etc., to be taxed at the highest rate of 30% without allowing any additional deduction (other than cost of acquisition) or set-off of any loss against such gains. Even gifting of VDAs to attract taxation in the hands of the recipient.
  2. Surcharge on long-term capital gain (LTCG) is restricted to 15% of tax in respect of transfer of an equity share or a unit of an equity-oriented fund/business trust. The budget proposed to extend the capping of the 15% surcharge on LTCG from any asset. Those taxpayers falling in the income bracket of more than INR 20 million stand to benefit.
  3. Presently, buyers of immovable property are required to deduct tax @ 1% on the sales consideration where the same exceeds INR 50 lakhs. An amendment has been made to deduct such TDS on the stamp duty value where the stamp duty value of the property is more than the actual sales consideration.
  4. A new updated return filing system is proposed wherein a voluntary updated return can be filed within 2 years from the end of the relevant Assessment Year (AY) on payment of additional taxes (25% or 50% of taxes and interest) and applicable interest and fee.
  5. Provisions have been enacted to give effect to the earlier announcements made in respect of COVID-related payments. Any payment received from an employer and/or any other person for medical treatment of COVID-19 is proposed to be fully exempt in the hands of the recipient individual. Further, any ex-gratia payment made to the family members of an employee within 12 months from date of death of such employee on account of COVID-19 is exempt from tax in the hands of the recipient family members without any limit (if paid by the employee of such person) and to the extent of INR 10 lakhs where paid by any other person.

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