Impact of Budget on Corporate Sector

Finance Minister Nirmala Sitharaman presented the Union Budget 2022-23 on 1st February 2022, with a slew of measures for corporates. Existing expectations from the Union Budget 2022 for Corporates revolved around ease of doing business, credit availability, and streamlining of Goods and Services Tax (GST).

Here is what was announced in the Union Budget 2022 for Corporates in India.

Tax-based highlights
Here are some of the tax-based announcements made in the 2022 Union Budget for Corporates.

As per the current law, any amount paid as ‘rate or tax’ on business profits cannot be counted as an expenditure while computing total income. However, as per rulings by courts, including the Hon’ble Bombay High Court, ‘education cess’ has been considered as deductible expenditure. The Union Budget clarified, retrospectively, that the term ‘tax’ includes any surcharge or cess, denying deductions for the same.
Taxpayers can now file updated income returns over a period longer than the extant timelines by paying an additional tax of 25 or 50% due on additional income. This proposal utilises the IT department data for revenue realisation while allowing easy compliance for taxpayers without the worry of litigation.
Newly-incorporated domestic manufacturing companies can avail of the concessional tax rate of 15%, with the last date for commencement of manufacturing or production extended to March 31, 2024.
Budget 2022 clarifies the deduction of interest payable on loans or borrowing from financial institutions or Non-Banking Finance Companies (NBFCs), etc. The budget clarifies that the conversion of outstanding interest into other instruments to defer the liability is not considered payment and cannot be claimed as a deduction under Section 43B of the IT Act.
As per the IT Act, carry forward and set-off of losses incurred by companies is allowed except when certain conditions, such as change of shareholding, are breached. To facilitate strategic disinvestment of public sector companies, the budget proposes that this condition does not apply to public sector companies wherein the ultimate holding company holds, directly or indirectly, 51% of the voting power.
According to the IT Act, a concessional rate of tax of 15% is allowed on the dividend income received by an Indian company from a foreign company in which the Indian company holds 26% of equity shares. To ensure parity in the tax treatment of dividends received by Indian companies from foreign companies versus domestic companies, the concessional tax rate is proposed to be withdrawn.
As far as GST is concerned, enabling provisions have been introduced by the Union Budget for Corporates. These provisions will limit the amount of tax credit that can be put towards paying the output tax liability.
Budget 2022 also states that there will be a 10% Tax Deducted at Source (TDS) on benefits over Rs 20,000 received during the course of a business or profession.

Other important announcements for the corporate sector
The Union Budget allocation for corporates further stipulates:

To promote the growth of economy-boosting startups, the budget proposes that the tax holiday for startups be extended by a year to March 31, 2023.
In an attempt to support the phased local production of selected products, like smartwatches and wrist watches, the next four years will see an increase in the basic custom duty rates on items such as electronics and watches, among others.
The budget also proposes amendments to the Insolvency & Bankruptcy Code (IBC) structure for smooth and faster resolution of debt-ridden companies.
Furthermore, the RBI will introduce India’s own digital currency or Central Bank Digital Currency (CBDC).

Read the budget highlights here.

The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances.