Scheme for taxation of virtual digital assets

Virtual Digital Assets, especially cryptocurrencies & Non-Fungible Tokens (NFTs), have gained tremendous popularity in recent times and the volumes of cryptocurrency trading has increased substantially. With a view to bring clarity for taxation of such assets, provisions to define such assets, provide for the taxation from income arising from transaction in such assets and TDS provisions are introduced.

Section 2(47A)-Definition

 The definition of Virtual Digital Assets proposed to be inserted vide new clause 47A to the section 2 of the Act, where Virtual Digital Assets are defined to cover assets with the following features:

i) Any information, code, number or token (not being Indian currency or foreign currency)

ii) Generated through cryptographic means or otherwise, by whatever name called,

iii) Providing a digital representation of value exchanged with or without consideration,

iv) with the promise or representation of having inherent value, or functions as a store of value or a unit of account including its use in any financial transaction or investment, but not limited to investment scheme,

v)  And can be transferred, stored or traded electronically.

 Further, Non fungible token (NFTs) and; any other token of similar nature are included in the definition. The NFTs means such digital assets as notified by the Central Government.

In addition to the above, power has been given to the Central Government to notify any other virtual digital asset as virtual digital asset by way of notification in the Official Gazette. Further, Central Government can notify such assets which shall not be considered as virtual digital assets for the purposes of the proposed section.

Section 115BBH-Taxability

A new section, section 115BBH is proposed to be inserted which provides for charge of tax on income from transfer of Virtual Digital Assets at a flat rate of 30% (plus applicable surcharge and cess).

“Where the total income of an assessee includes any income from transfer of any virtual digital asset, the income tax payable shall be the aggregate of the amount of income-tax calculated on income of transfer of any virtual digital asset at the rate of 30% and the amount of income-tax with which the assessee would have been chargeable had the total income of the assessee been reduced by the aggregate of the income from transfer of virtual digital asset.”

For computing the income (Gain) arising from the transfer of the Virtual Digital Assets, no deduction for any expenditure or allowances or set off of any loss, apart from deduction for cost of acquisition, shall be available.

 Further, the losses from transaction in Virtual Digital Assets shall only be set off against gains from transactions in Virtual Digital Assets and shall not be available for set off against any other income. And, also, such loss shall not be allowed to be carried forward to subsequent assessment years.

This amendment will take effect from 1 st April, 2023 and will accordingly apply in relation to the assessment year 2023-24 and subsequent assessment years.

Section 194S-TDS

in order to widen the tax base from the transactions so carried out in relation to these assets, it is proposed to insert section 194S to the Act to provide for deduction of tax on payment for transfer of virtual digital asset to a resident at the rate of one per cent of such sum.

However, no deduction will be required wherein the consideration paid during the FY does not exceed Rs. 50,000/- (in case of specified person) or Rs. 10,000/- (in any other case).

Specified Person for the purpose of section 194S means

i) An Individual/ HUF whose total sales/Gross receipt does not exceed Rs. 1 crore (in case of business) or 50 lacs (in case of profession) during the FY immediately preceding the FY in which such virtual digital asset is transferred.

ii) Individual/ HUF not having any income from the head “Profit and gains of business or profession.

Scheme for taxation of virtual digital assets (Cryptocurrencies & NFT)

Where the consideration is wholly in kind or in exchange of another virtual digital asset where there is no part in cash; or partly in cash and partly in kind but the part in cash is not sufficient to meet the liability of deduction of tax in respect of whole of such transfer, the person paying such consideration shall make sure that the tax has been paid before releasing such consideration.

The provisions of Section 203A (Tax deduction and collection number) and 206AB (Higher TDS rates for non-filers of ITR) will not be applicable to payments made by specified person.

The section also provides that if tax has been deducted under section 194S, then no other TDS/TCS provision shall apply in respect of the said transaction.

Where tax is deductible under both section 194-O and proposed section 194S, then tax shall be deducted under section 194S and not under section 194-O.

This amendment will take effect from 1st July, 2022.

Taxability of Gift of Virtual Digital Assets

The expression “property” in Section 56(2)(x) shall include virtual digital assets.

Therefore, income arising from gift, or from transfer of virtual digital assets for inadequate consideration, shall be taxed in the hands of recipient.

This amendment will take effect from 1 st April, 2023 and will accordingly apply in relation to the assessment year 2023-24 and subsequent assessment years.

Author Bio

Qualification: CA in Job / Business
Company: Raghu Nath Rai & Co. (Chartered Accountant)
Location: New Delhi, Delhi, India
Member Since: 05 Nov 2020 | Total Posts: 3

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