By Sudin Sabnis and Yogesh Kale

Amidst the global pandemic and the soaring expectations of India Inc and masses at large, Finance Minister (‘FM’) presented her fourth Union Budget in the parliament today. The FM presented the budget 2022 with a vision of India@100 having entered the into AmritKaal, the 25-year-long leadup. 

The India@100 vision aims at inclusive development with four priorities, viz.: 

1. PM GatiShakti – aimed at steering India towards economic growth and sustainable development driven by seven engines, viz., Roads, Railways, Airports, Ports, Mass Transport, Waterways, and Logistics Infrastructure.

2. Inclusive Development – encompassing agriculture, river linking projects, food processing, MSME, skill development, quality education, health, women empowerment, affordable housing, vibrant villages programme, revamping post offices etc.

3. Ease of Doing Business 2.0 and Ease of Living – covering easier green clearances, accelerated corporate exit scheme, orderly urban development, focus on alternative fuel technology (battery swapping, encouraging flex-fuel technology, etc.), export promotion and AatmaNirbharata in defence, amongst others.  

4. Financing of Investments – encompassing public capital investments, green bonds to finance green infrastructure, introduction of renowned foreign universities in GIFT city, blended finance and financial assistance to the States for capital investments, amongst others.   

In a nutshell, the FM’s proposals are aimed at inclusive and sustainable development with a particular focus on rapidly building infrastructure, advancing Aatmanirbhar Bharat mission, skill development, and employment generation. The proposals also include allocations to Production Linked Incentive (PLI) Schemes for design-led manufacturing to build a strong ecosystem for 5G (in addition to the existing designed linked incentive for semiconductor designers) and for manufacture of high efficiency modules for solar power generation. 

One of other noteworthy proposals is to regulate virtual digital assets. It has been clarified that RBI would come up with a regulated digital currency. Gains from transfer of virtual digital assets are sought to be taxed @ 30%, without any deduction except cost of acquisition. Further, the corresponding loss is proposed to be not allowed to be set off against any other income and would also not be allowed to be carried forward to subsequent years. Also, TDS at 1% from consideration for virtual digital assets is proposed to be introduced. It is also proposed that gift of virtual digital assets would be taxed in the hands of the recipient.  Though the FM seeks to put an end to the raging debates around taxability of digital assets with this proposal announcement, the proposed amendments would have a big impact, as in 2021 alone, about 20 million people in India jumped on to the crypto bandwagon and Indians currently hold crypto assets worth USD 5.3 billion.

In order to provide a boost to domestic manufacturing, the due date for commencing manufacturing activities for the new manufacturing companies for availing concessional tax rate of 15% is proposed to be extended to 31 March 2024 from 31 March 2023. Similarly, to provide encouragement to start-up community, the last date for incorporation of start-up eligible to claim tax holiday is also proposed to be extended to 31 March 2023 from 31 March 2022.

On the wave of buoyant GST collection in recent times, the FM has designed her indirect tax proposals in a manner which would help decongest supply chains (by reducing anti-dumping duty on scrap steel), increase ease of doing business (online mechanisms under customs introduced for SEZ, increase in timeframe to avail input tax credit), promote exports (SEZ policy to be revamped) as well as encourage domestic substitution especially in capex arena (by way of increase in duty on capital goods and project imports to 7.5% from 5% and phased our concessional rates). This augurs well for the domestic industry and would help encourage domestic manufacturing across supply chain and related sectors in alignment with the Prime Minister’s vision of “Aatmanirbhar Bharat”.

The Finance Minister has also sought to reduce litigation and introduced exemptions to specified transactions in GIFT City. The focus of the government seems to be forward looking as it seeks to promote adoption of new age technology and encourage skilling and reskilling to promote employment generation. Though it may be argued in some quarters that service sectors affected by the ongoing pandemic like tourism etc. may feel neglected, the budget focuses on a path of resilience for the domestic manufacturing industry. 

(Sudin Sabnis is Partner and Yogesh Kale is Director at Nangia Andersen LLP. With inputs from Tamanna Hinduja. The views expressed are authors’ own.)