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4 important changes in income tax rules effective from 1 April 2022

A new income tax rule is introduced to provide an opportunity to the taxpayer to include missed or undisclosed income or any other error leading to less payment of tax in the original tax return. 

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The taxpayers can file the updated return after the end of the relevant assessment year but before the completion of 24 months.

With effect from 1st April 2022, taxpayers need to comply with certain important income tax provisions as per the given timelines.

Archit Gupta, Founder and CEO of Clear, says, “These are the major changes in the Income Tax Act that the taxpayer should comply with for FY 2022-23.”

New rules on EPF interest

With effect from 1st April 2022, if the employee’s contribution to Provident Fund account exceeds Rs 2.5 lakh during the financial year, the interest earned on the excess contribution is taxable in the hands of the employee year after year. Currently, interest on any amount of contribution to an EPF account is tax-free. 

Filing of updated return

A new income tax rule is introduced to provide an opportunity to the taxpayer to include missed or undisclosed income or any other error leading to less payment of tax in the original tax return. 

Gupta points out, “The taxpayers can file the updated return after the end of the relevant assessment year but before the completion of 24 months.”

“The taxpayer is required to pay a 25 per cent penalty on additional tax if the updated return is filed between 1 to 12 months or a 50 per cent penalty on additional tax if the updated return is filed between 13 to 24 months,” he further adds. 

Crypto taxation

The Union Budget 2022 proposed a new provision in the Income Tax Act for taxing cryptocurrency. A new term ‘Virtual digital assets’ is inserted in the Act, which includes cryptocurrency, Non-fungible tokens, etc., in its definition. 

Gupta explains, “Any person transferring virtual digital assets is liable to pay tax at 30 per cent on the profits. No expenses are allowed to be deducted from such income, except the acquisition cost. As per further clarification from the government, the infrastructure expenses incurred for mining cryptocurrency should not be treated as the acquisition cost but as a capital expenditure.”  

While making payment for the transfer of virtual digital assets, note that TDS should be deducted at 1 per cent of the value of virtual digital assets transferred. The gifting of cryptocurrency is also taxable in the hands of the receiver. Additionally, losses from the sale of cryptocurrency cannot be set off against any other income. “As per further clarification, losses from one class of crypto-asset cannot be set off against income from another class of crypto asset,” adds Gupta. 

TDS on providing benefits or perquisites to businesses

According to Gupta, any person who provides perks or benefits in place of the regular consideration payable to the resident, in monetary terms, for carrying out business or exercise of the profession by such resident shall deduct tax (TDS) before providing such benefit or perquisite. 

He further adds, “A new Section 194R is inserted for the same and will be effective from 1st July 2022. The person must deduct TDS at 10 per cent on the value of such perquisite or benefit is given, provided the aggregate value of the perquisite or benefit exceeds Rs 20,000 during the financial year.”

However, keep in mind any individual or HUFs are not liable to deduct TDS if their total sales from business are less than Rs 1 crore or gross receipts from the profession are less than Rs 50 lakh during the year. 

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