New Income Tax Rules Effective from FY 2022-23
Ingressing into FY2022-23 and as per the last Union budget presented by Finance Minister Nirmala Sitharaman, new income tax rules will be applicable on what you earn this year. Although now you will be filing ITR for FY 2021-22 and don’t need to worry about the new tax rules, you should plan all your finances accordingly for this by learning the key changes made in the income tax rules effective from FY2022-23.
Summary in Brief
2 Years Tax Filing Window
From this financial year onwards you will have enough time to rectify your Income Tax Return (IRT) in case you have shown less tax liability or forgot to include an income from some source. Taxpayers will now have 2 years in hand to modify their income tax filing in case they have shown less tax liability than actual. The previous window was only 5 months. However, make sure you have reported all your tax saving investment and capital losses that can be set-off against capital gains because the 2 years window does not allow rectification in ITR to reduce tax liability.
30% tax on crypto gains
Taxation on virtual/digital assets has been one of the biggest highlights of the Union Budget 2022. The newly introduced tax provision levies 30% tax on gains made from the sale/transfer of virtual assets like cryptocurrencies. The Finance Minister acknowledged that crypto transactions have now reached a voluminous threshold and should come under the Indian Tax Act. Furthermore, the Union Budget also put 1% TDS on every crypto transaction, irrespective of the fact that the asset has been bought or sold.
Important things to note:
- 30% tax will be levied on gains made from selling cryptocurrencies but 1% TDS will be on the entire value of the transaction, regardless of the fact that you have made profit or loss through the trade.
- You cannot set-off losses made through crypto trading against gains made through selling any other asset, including cryptocurrencies.
Let us understand this with an example. Suppose you bought Bitcoin worth Rs 10,000 and sold it at Rs 12,000. The taxes you have to pay on this are:
1% TDS of the value of purchase = 1% of 10,000 = Rs 100
1% TDS of the value of sale = 1% of 12,000 = Rs 120
30% on the profit = 30% of (12000-10000) = Rs 600
Total tax = 100 + 120 + 600 = Rs 820
Actual profit made = 2000 - 820 = Rs 1180
Moreover, this gain cannot be used to set-off any loss made through trading cryptocurrency. For example, if you have made another trade in Bitcoin (or any other cryptocurrency) and suffered a loss of Rs 1,000 (buying at Rs 10,000 and selling at Rs 9,000), you cannot set this off against the Rs 2,000 gain made in the previous trade.
Even in this trade where you made a loss, you will have to pay TDS of 1% on both purchase and sale amounts.
1% of Rs 10,000 = Rs 100
1% of Rs 9,000 = Rs 90
Total tax = 100 + 90 = Rs 190
Taking everything into account from the aforementioned two transactions, we have the following:
Total gain: Rs 2,000
Total loss: Rs 1,000
Net gain: Rs 1,000
Total tax to be paid on both the trades: Rs 820 + Rs 190 = Rs 1,010
Hence, actual net gain/loss = Rs 1000 (net gain) - Rs 1010 (taxes) = loss of Rs 10
NPS deduction increased for State Government employees
The Union Budget 2022 increased the NPS deduction amount for state government employees under Section 80CCD(2). Now, state government employees can also claim a deduction on NPS contributions made by the employer up to 14% of their basic salary. This brings them at par with the central government employees who have been enjoying this higher deduction NPS as of now.
Note: This is only applicable for state government employees and not employees of any private company.
Taxation on PF Account
The government put a cap on the maximum cap on the tax-free contributions made in the Provident Fund (PF) account. A PF account holder can now claim a maximum of Rs 2.5 lakhs deduction for the contributions made in his/her PF account. Contributions made above Rs 2.5 lakhs will be taxed as per the existing laws. For example, if you have contributed Rs 3 lakhs in your PF account, only Rs 2.5 lakhs can be claimed as deduction, whereas, you have to pay applicable tax on the remaining Rs 50,000.
LTCG surcharge extended to all assets
Presently, long term capital gains (LTCG) made from the sale/transfer of equities and equity mutual funds are levied with a certain surcharge which can be up to 15%. Now this has also been made applicable to LTCG made from sale/transfer of all types of assets.
Tax exemption on COVID treatment expenses
Earlier, the government exempted money received by anyone for COVID-19 treatment from taxation. Additionally, the money received by a family member on the death of a person is also exempted from taxation. The maximum exemption limit in this case is Rs 10 lakhs and the money should be received within 12 months of the death of the person.
Tax relief to PwDs
The parent or any guardian of a person with disability can take health insurance for the concerned person and claim tax deduction on the amount paid for insurance policy premiums.
No tax saving on home loan interest under Section 80EEA
Earlier, Section 80EEA of the Income Tax Act offered deduction of up to Rs 1.5 lakh on home loan interest paid for property with a value less than Rs 45 lakhs. The tax saving benefit has not been extended further in the Union Budget for FY2022-23. Except this, other home loan interest deductions offered under Income Tax section like Section 24 are valid and still available for taxpayers.
Taxation on dividends earned
Dividends earned from investments made in mutual funds or any domestic firm will be taxed as per the applicable income tax slab of the taxpaying individual
- I sold my crypto holdings before 1st April 2022, will I be able to set off the losses while filing ITR for FY 2021-22?
Yes, you can set-off your losses made in cryptocurrencies against other capital gains if you sold your holdings on or before 31st March 2022. From April 01 onwards, you will not be able to set-off losses made in crypto trades against profit of any kind.
- How much maximum deduction can I claim for investments made in the PF account?
As per the tax provisions introduced in the Union Budget 2022, you claim a maximum deduction of Rs 2.5 lakhs for the contributions made in PF account. Any amount beyond Rs 2.5 lakhs will attract tax as per the applicable rates.
- Will I be able to edit the ITR for FY 2022-23 in case I forgot to include a tax-saving investment?
No, you won’t be able to edit ITR to reduce your tax liability. The window of 2 years to make rectifications in ITR is only to increase the tax liability. In other words, if you forgot to declare certain income, you will have 2 years to edit the filed ITR and include the income.