The world is witnessing an increase in Virtual Digital Assets (“VDA”) transactions like cryptocurrencies, non-fungible tokens (“NFTs”), etc., India is no exception. This budget India has chosen to reign in the taxation challenges of VDAs.
The existing tax framework lacked the legislative machinery to tax income from these, majorly because, they are yet to receive full recognition and integration. What better way to initiate the process, than taxing the income.
The Finance Bill, 2022 has come with a framework for purchase, sale, withholding tax and gift of VDA.
Definition
A new clause, (47A) to Section 2 of the Income Tax Act to define VDA
“(a) any information or code or number or token (not being Indian currency or foreign currency), generated through cryptographic means or otherwise, by whatever name called, providing a digital representation of value exchanged with or without consideration, 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; and can be transferred, stored or traded electronically;”
It includes NFTs or tokens of similar nature and any other digital assets as specified by the Government. We are not sure if this will include the Digital Currency the RBI will formalize. Although, it has created room for excluded VDAs.
NFTs have been included to be taxed but have not been defined for this purpose and is said to be done through a notification in the Official Gazette.
Income arising from Transfer of VDA
The insertion of Section 115BBH taxes income from VDAs at 30% of the transaction amount. The expenditure or loss, except the cost of acquisition, incurred in the transactions, is not allowed to be set off for the tax payable. Any loss from these transactions cannot be carried forward to the succeeding assessment years.
A VDA gift is taxable at the hands of the recipient in a similar manner.
Additionally, a 1% TDS through section 194S will be applicable on VDA transactions wef., July 01, 2022. To be deducted by the acquirer and deposited with tax authorities at the time of paying consideration beyond a specified monetary threshold.
Crypto investors have to report their gains and losses of VDA transactions.
There is no classification, at the moment to the VSAs, for the kind or purpose casts a wide net in the age of classification. This lack of classification, for industries like Gaming, Art, Music and Entertainment, would mean a significant tax burden with limited avenues to contain the exposure.
Digital Rupee
The announcement of the introduction of Digital Rupee (CBDC- Central Bank Digital Currency) means that India will soon have a digital equivalent of the fiat Indian Rupee in line with several other countries like China. CBDC is to be backed by blockchain technology thereby welcoming its incorporation in the country and recognizing its potential. This digital currency is not being classified under the current crypto tax regime and more on this is yet to be revealed by the government.
The taxation regime on cryptos comes as a respite to Indian talent competing with the global counterparts as they have seen progress from RBI ordering Banks to not facilitate crypto transactions to Government taxing it.
The high taxation can prove to be counterproductive but if it is getting taxed, means the Government considers it worthy of contributing to the revenue kitty, ideally this should persuade players to go strong on it.
This is only for informational purposes. Nothing contained herein is, purports to be, or is intended as legal advice and you should seek legal advice before you act on any information or view expressed herein. Endeavoured to accurately reflect the subject matter of this alert, without any representation or warranty, express or implied, in any manner whatsoever in connection with the contents of this. This isn’t an attempt to solicit business in any manner. Source: The Finance Bill, 2022