Budget 2022: What is a finance bill?

A Finance bill is proposed every year to define the amendments required in the country’s taxation policies. As per Article 110 of the Indian constitution, a Finance bill is a money bill introduced every year as a part of the annual Budget of India. Presented by the Finance Minister, the Finance bill has to get approval from the Lok Sabha (lower house of the parliament) in order to become Finance Act. In this Finance bill article, we will discuss the basics of the Finance Bill, its features, highlights of the previous Finance Bill, and the expectations surrounding the upcoming Finance Bill.

Why is Finance Bill Introduced?

Finance Bill is a customary part of the yearly Budget of the country. It basically serves two main purposes:

To make legal amendments or changes in the existing tax laws and taxation structure of the government.
To make proposals for the continuation of ongoing tax laws or the present tax structure further.

A Finance Bill is approved by the parliament for one fiscal year. If any of its introduced laws or structure has to continue for more than one fiscal year, it should be mentioned in the next Finance Bill.

How is Finance Bill Introduced?

Finance Bill is introduced as a part of the Union Budget of India by the Finance Minister. It is presented in the Lok Sabha, where it has to receive a majority vote from the members of the Lok Sabha to get approved. It is then passed to the Rajya Sabha to be returned back to the Lok Sabha with recommendations. After getting the final approval from the Lok Sabha and the President, the Finance Bill becomes Finance Act and all the mentioned amendments and changes become valid.

Features of Finance Bill

A Finance Bill is categorized into three heads- Finance Bill Category I, Finance Bill Category II, and the Money Bill.
The Speaker of the house decided whether the Finance Bill introduced is a Money Bill or not.
Both the Finance Bill Category I, and Finance Bill Category II contains provisions related to taxation, expenditure, or any other matters.
The Money Bill defines amendments/changes related to borrowing, taxation policies at the Union or State level, usage of contingency or consolidated funds, and others.
Finance Bill is introduced by the Finance Minister in the lower house of the Parliament, i.e; Lok Sabha.
After getting passed by Lok Sabha, it is sent to Rajya Sabha that can provide suggestions or changes that can be considered in the Finance Bill.
The Rajya Sabha has to return the Bill to the Lok Sabha with recommendations within 14 days.
The Lok Sabha, may or may not accept the recommendations made by Rajya Sabha. Irrespective of this, the Finance Bill will be considered to be passed by both Houses.
After getting passed by both Lok Sabha and Rajya Sabha, the Bill is then sent to the President for approval, after which it becomes a Finance Act.

Finance Bill 2021: Key Highlights

The Finance Bill 2021 proposed a number of amendments to the then hitherto existing tax laws and taxation structure. Presented by Mrs. Nirmala Sitharaman, the Finance Minister of India, the Bill introduced several new provisions into the tax laws of India:

The Bill exempted Leave Travel Allowances that employees receive from their employers for going on a vacation with their family members from taxation.
The maximum contribution that can be made by employees to their PF account was increased from 2.5 lakhs to 5 lakhs, in case no contribution is made by the employer to the fund.
The threshold for tax audit was increased from 5 crores to 10 crores for a business if atleast 95% of the business transactions happen through digital means.
The maturity proceeds from unit-linked insurance policies (ULIPS) with a yearly premium of atleast Rs 2.5 lakhs, and not issued before 01-02-2021 are exempted from taxation.
Section 54GB was introduced to offer an exemption on capital gains incurred by the transfer of a house property, land plot, etc.
Changes made in TDS on different types of payments, dividends, purchases, etc.

Besides the aforementioned ones, a lot more changes were introduced in the Finance Bill 2021.

Expectation from Finance Bill 2022

There are a number of expectations revolving around the Finance Bill 2022 which will be introduced with the Budget 2022-23.

Regulation of cryptocurrencies and taxation:

The government is going to introduce a Bill for the regulation of crypto assets. Along with this, it will also bring clarity on cryptocurrency taxation related to crypto trading transactions, tax on gains made from the transfer of crypto assets, etc.

Work from home allowance:

The Finance Bill 2022 is also expected to offer tax exemption on work from home allowances given to salaried employees by their employers.

Revised standard deduction limit:

The current Standard Deduction limit is Rs 50,000, which was very applauded by the salaried employees when the limit was raised. The government is again planning to raise the Standard Deduction limit further.

Introduction of new tax regime:

The existing tax regime is not very popular among the salaried employees as a major part of this section is still seen filing ITR with the old tax regime only. The government may reform the tax regime and increase the higher tax slab.

Revised Section 80C deduction limits:

The government might also consider increasing the deduction limit provided under Section 80C for investments made under Equity-Linked Savings Schemes (ELSS). Besides, a new limit can be defined separately for other financial instruments to promote investments in mutual fund schemes.

Apart from changes in direct tax provisions, it is also likely that the Finance Bill 2022 will introduce a few amendments to the indirect taxes. We can expect a reduction in the e-invoicing applicability limit under GST, introduction of a reverse charge mechanism, revised annual GST returns, etc.

A Finance Bill is a necessary component of the Union Budget of India, also known as the Annual Financial Statement. The Bill contains all the details related to proposals made in the Union Budget related to the amendments of existing tax laws or changes required in the tax structure.