Direct And Indirect Tax: What's The Difference? Tax Provisions In Union Budget 2022 Explained

According to the budget documents for 2022-23, for every rupee in the government coffer, 58 paise will come from direct and indirect taxes.

Representational image (Photo: Getty)

New Delhi: In her fourth Union Budget, Finance Minister Nirmala Sitharaman avoided new taxes, even as she also refrained from bringing any change to Income Tax slabs.

Taxpayers can now file updated income tax returns within two years in a one-time window. 

Sitharaman said a concessional corporate tax rate of 15 per cent would be available till March 2024 for newly incorporated manufacturing companies.

In a significant announcement, she said a 30 per cent tax will apply on any income from the sale or purchase of virtual and digital assets, and a 1 per cent tax will be deducted at source (TDS) on transfer of these assets above a monetary threshold.

In terms of indirect taxes, the minister proposed changes to the regime and announced more duty concessions.

According to the budget documents for 2022-23, for every rupee in the government coffer, 58 paise will come from direct and indirect taxes.

What Is The Difference Between Direct And Indirect Taxes?

There are different kinds of direct and indirect taxes.

While a direct tax is levied on income and activities, an indirect tax is levied on product or services.

The direct tax is paid directly by the taxpayer, while an indirect tax paid by one entity can be recovered from another.

While direct taxt is paid only after the income reaches the taxpayer, indirect tax is to be paid before goods or services reach the taxpayer.

Income Tax, Corporate Tax, Wealth Tax and Estate Duty are some examples of direct tax. Indirect taxes include Excise Duty, Sales Tax, Custom Duty, Entertainment Tax and Service Tax.

What Union Budget 2022 Says On Direct Taxes And Indirect Taxes

DIRECT TAXES

• The government introduced an ‘updated return’ policy under which there will be a provision to file an 'updated return' on payment of additional tax. This, the FM said, will enable the assessee to declare income missed out earlier. The updated return can be filed within two years from the end of the assessment year.
• The Alternate Minimum Tax paid by cooperative societies has been brought down from 18.5 per cent to 15 per cent. Further, surcharge on the societies reduced from 12 per cent to 7 per cent for those with total income of more than Rs 1 crore and up to Rs 10 crore.
• There will be some tax relief to persons with disability. Payment of annuity and lump sum amount from insurance scheme to be allowed to differently abled dependent during the lifetime of parents or guardians, i.e., on their attaining the age of 60 years.
• The limit of tax deduction increased from 10 per cent to 14 per cent on employer’s contribution to the NPS account of state government employees, which will bring them at par with central government employees.
• For start-ups, the period of incorporation extended by one year, up to 31.03.2023, to avail tax benefit. 
• Any income from transfer of virtual digital assets will be taxed at the rate of 30 per cent. And to capture the transaction details, 1 per cent TDS will be charged on payment made in relation to transfer of virtual digital asset, above a monetary threshold.
• Subject to specified conditions, income of a non-resident from offshore derivative instruments; income from over the counter derivatives issued by an offshore banking unit; income from royalty and interest on account of lease of ship; and income received from portfolio management services in IFSC will be exempt from tax.
• Surcharge on AOPs (consortium formed to execute a contract) has been capped at 15 per cent.
• Surcharge on long term capital gains arising on transfer of any type of assets capped at 15 per cent.

INDIRECT TAXES

• Customs administration of special economic zones will be fully IT driven, and they will function on the Customs National Portal by September 30, 2022.
• 'Faceless Customs' established.
• Concessional rates in capital goods and project imports is being phased out to pave the way for a "moderate" tariff of 7.5 per cent, which the ministert said is  "conducive to the growth of domestic sector and ‘Make in India’".
• Exemptions for advanced machineries not manufactured within India will continue.
• A few exemptions introduced on inputs, like specialised castings, ball screw and linear motion guide.
• More than 350 exemption entries proposed to be gradually phased out, like exemption on certain agricultural produce, chemicals, fabrics, medical devices, & drugs and medicines for which sufficient domestic capacity exists.
• In the electronics sector, Customs duty rates will be calibrated to provide a graded rate structure — to facilitate domestic manufacturing of wearable devices, hearable devices and electronic smart meters.
• Duty concessions to parts of transformer of mobile phone chargers and camera lens of mobile camera module and certain other items – to enable domestic manufacturing of high growth electronic items.
• Customs duty on cut and polished diamonds and gemstones being reduced to 5 per cent, and there will be no customs duty to simply sawn diamond.
• A simplified regulatory framework for the gem and jewellery inductry to be implemented by June to facilitate export of jewellery through e-commerce.
• Customs duty of at least Rs 400 per kg to be paid on imitation jewellery import, a move that aims to disincentivise import of undervalued imitation jewellery.
• Customs duty on certain critical chemicals such as methanol, acetic acid and heavy feed stocks for petroleum refining being reduced. Duty is being raised on sodium cyanide for which adequate domestic capacity exists.
• Customs duty on umbrellas being raised to 20 per cent. Exemption to parts of umbrellas being withdrawn.
• Certain Anti- dumping and CVD on stainless steel and coated steel flat products, bars of alloy steel and high-speed steel are being revoked.
• To incentivise exports, exemptions being provided on items such as embellishment, trimming, fasteners, buttons, zipper, lining material, specified leather, furniture fittings and packaging boxes.
• Duty being reduced on certain inputs required for shrimp aquaculture.
• To encourage blending of fuel, unblended fuel to attract an additional differential excise duty of Rs 2/ litre from the 1st of October 2022.