What does Budget 2022 mean for the common man?

Though not a dream budget, it still has much to offer for all with an eye on overall economic development and focus on key growth engines of the economy

Shruti Ashok | February 2, 2022


#housing   #healthcare   #education   #infrastructure   #Nirmala Sitharaman   #taxation   #economy   #Budget   #rural development  
(GN Photo)
(GN Photo)

Amidst the third Covid-19 wave raging the country, India's finance minister Nirmala Sitharaman delivered her shortest ever budget speech and presented the budget of 2022-23 on February 1. With a view to provide impetus to the country’s GDP growth, this budget is deemed to be pro-growth with focus on substantial government expenditure on capital expenditure and investments. With not much to offer to the common man, it is focussed more on economic revival and maintains status quo on most of its policies taken in earlier budgets.

No change in existing income tax slabs:

Given the impact of rising inflation levels and the ongoing pandemic, it was expected that the budget will provide some relief to the common man with respect to tax liability. It did not have much to offer. Status quo was maintained and no new changes were introduced in the personal income tax slabs category or standard deduction. This was definitely a dampener for the salaried class leaving many of them disappointed.

Updated ITR filing window:
The finance minister allowed updated tax returns to be filed within two years from the end of the assessment year in case the earlier returns filed were incorrect. This is an attempt to provide option to taxpayers to declare any income that they had not included in their earlier filed returns. Specifically applicable in cases where the taxpayer later realises their omissions or mistakes, this action is an affirmative step in the direction of voluntary tax compliance. This move is clearly aimed at giving a fair chance to make undeclared income legal while also intending to increase tax collections.

Focus on mental health issues:

Owing to the negative impact of Covid-19 on mental health, the budget announced the roll-out of the national tele-mental health programme. This programme will be operated under a network of 23 mental health centres of excellence under the country’s premier mental health institute – NIMHANS. Many countries already have such policies in place and it is the first time that the government of India has recognised this issue. It’s important that mental health policies are integrated into public health policy and general social policy, primarily due to the following reasons:  (1) mental disorder may be a heavy burden on societies, and (2) that mental disorder hinders the development of other health and development targets by contributing to poverty and affects the poor if not treated in time.
 
Housing:
In a boost to affordable housing, the budget announced an allocation of Rs 48,000 crore to complete of 80 lakh houses in 2022-23 under the PM Awas Yojana.  This move showcases the government’s commitment to building affordable housing and is expected to give a push to the real-estate sector and developers who are building affordable homes. Coupled with the government’s focus on urban development, this initiative is expected to boost movement to urban cities and will encourage upcoming talent. With increased employment, disposable income of households would go up uplifting the economy.

Gains on digital assets become taxable:
With the proliferation in the use of digital assets like cryptocurrencies, the budget has shed light on the tax liability treatment of such assets. Any income on such virtual assets will be taxed @ 30%, whether held for short term or long term. There would be no deductions and exemptions allowed, except for the cost of acquisition. TDS @ 1% will be charged on such transactions. Any digital asset given as gift will also be taxable in the hands of the recipient. This is a welcome first step by the government in regulating digital assets and will change a lot of misconceptions around crypto assets, paving the way forward in classifying them as a separate asset class.

India to introduce its own Central Bank Digital Currency (CBDC):
India joined the bandwagon of countries having their own digital currency. Using the Blockchain technology, this currency will be introduced by RBI making it theonly recognised digital currency in India. Central Bank Digital Currency (CBDC) has the potential to promote financial inclusion and its introduction will give a big boost to the digital economy. For an economy of India’s size and global influence, this move is definitely transformational.

Focus on education and skill empowerment:
To bridge the learning gap due to the pandemic which has led to a two-year school closure in physical mode, the government is turning to digital and on-air mode. The government will supplement the learning in schools by extending the PM e-Vidya initiative in regional languages. The budget has proposed to set up a digital university to provide world-class universal education. The pedagogy at this university will be to deliver high quality e-content through digital teachers.

As the pandemic induced the need for new skill sets, this budget aims to empower citizens to skill, reskill or upskill through online training. The productivity linked incentive (PLI) scheme was expanded in this budget. Spread across 14 sectors including IT hardware manufacturing, this scheme has a potential to create 60 lakh jobs over a period of next five years. A Digital ecosystem for Skilling and Livelihood (DESH stack e-Portal) will be launched to promote online learning. Given the altered skill requirements, this initiative by the government is a welcome move and will make many more individuals employment ready.  

Surcharge on long-term capital gains across all asset classes to be capped at 15 percent:

The budget has uniformly capped surcharge @15% on long-term capital gains (LTCG) across all asset classes. Earlier, except equity shares, equity-oriented mutual fund units, etc, surcharge on LTCG on all other assets was charged @37%. This is probably the only welcome news for individuals and is a 16% reduction in the effective tax rate. This addresses a long-standing demand of new-age companies and is set to benefit venture capital investors and start-up founders are set to benefit from this tax tweak.

Parity between employees of state and central governments:

With an aim to enhance social security benefits to states government employees and bring them on par with central Government employees, the budget has increased the tax deduction limit from 10% to 14% on the employer’s contribution to the NPS account of state government employees as well. So far, only 10% of the employer’s contribution for state government employees is allowed as deduction.

Though not a dream budget, it still has much to offer for all. With an eye on overall economic development and focus on key growth engines of the economy – infrastructure, education, healthcare, housing and rural development, this is definitely a forward-looking budget. While the individual taxpayers may not have received any significant big-bang tax sops, it is expected that through the implementation of various tax proposals, the government achieves its objective of simplification of tax regime and reducing tax litigation.

Dr. Shruti Ashok is Assistant Professor, School of Management, Bennett University.

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