Due to emerging transaction of virtual digital assets government of India introduce taxability of virtual digital assets in Finance Bill 2022. W.e.f. 01.04.2022 Tax consequences will arise on transfer of any Virtual Digital Assets by assesses.
What is Virtual Digital Assets?
Any information or code or number or token generated through cryptographic means or otherwise, by whatever name called which is providing a digital representation of value exchanged with or without consideration, with the promise of having inherent value, or functions as store of value or a unit of account including its use in any financial transaction or investment but not limited to investment scheme and can be transferred, stored or traded electronically.
E.g., Crypto currency (Bitcoin).
A non-fungible token or any other token of similar nature, by whatever name called.
Any other digital assets, as the central government may, by notification specify in official gazette.
Virtual Digital Assets will exclude following:
1. Gift card or vouchers, being a record that may be used to obtain goods or services or discount on goods or services.
2. Reward points or loyalty card, being a record given without direct monetary consideration under an award, reward, benefit, loyalty, incentive, rebate or promotional program that may be used or redeemed only to obtain goods or services or a discount on goods or services.
3. Subscription to websites or platforms or application.
Taxability of Virtual Digital Assets W.e.f. 01-04-2022:
- Section 115BBH has been inserted by Finance Act, 2022 the section provides that income resulting from transactions in Virtual Digital Assets on and after 01-April-2022 shall be taxed at a flat rate of 30%.
- Deduction only in respect of cost of acquisition of Virtual Digital Assets from value of consideration receive will be allowed. No deduction in respect of any expenditure or allowance or set off of loss shall be allowed to assessee under any of the provision of this act in computing income.
- No set off of loss from transfer of virtual Digital Asset computed shall be allowed against income computed under any provisions of this act to the assessee and such loss shall not be allowed to be carried forward to the succeeding assessment year.
- For the purpose of this section, the word “transfer” as defined in clause 47 of section 2, shall apply to any Virtual Digital Asset, whether capital or not.
Income Taxable under which Head?
The government did not clarify regarding head of income under which Virtual Digital Assets will be taxable. Let’s understand different head of income as per below:
Taxation under the head Business Income:
If the transaction in Virtual Digital Assets are frequent and voluminous then it may held that tax payer is trading in digital assets and considered as business income which will be taxable @30% plus surcharges and cess.
Taxation under the head Capital Gain Income:
Virtual Digital Assets may be classified as income under the head capital gain if purchase by assessee for investment purpose. If digital assets held by assessee for more than 36 months then it will be considered as long term otherwise as short term.
Taxation under the head Income from Other Source:
In case of stray transaction in Virtual Digital Assets, income would be reported under income from other source.
TDS on Payment on transfer of Virtual Digital Assets:
As per section 194S, any person responsible for paying to any resident any sum by way of consideration for transfer of a virtual Digital Assets, shall at the time of credit of such sum or at the time of payment whichever is earlier, deduct an amount equal to 1% of such sum of income tax thereon.
W.E.F. 01-07-2022 no deduction will be required wherein the consideration paid during financial year does not exceed Rs.50,000 (in case of specified person) or Rs.10,000 (In any other case).
This section also provides that if tax has been deducted under this section 194S, then no other TDS/TCS provision shall apply in respect of the said transaction.
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