UNDERSTANDING TAX LIABILITY ON VIRTUAL DIGITAL ASSETS
SYNOPSIS:
- What is a Virtual Digital Asset?(VDA)
- Taxation of VDA
- Exemption
Cryptocurrencies have been the talk of the year both from the Government side and investor side. Since 2019, the Government has been emphasising on banning the trade and investment of Cryptocurrency yet, the Finance Bill,2022 has introduced a capital gains tax on the transfer of Virtual Digital Assets. To understand what Virtual Digital Asset is, plays an important role as to why they need to be taxed.
Virtual Digital Asset:
As per the Finance Bill, the term “virtual digital asset” includes both cryptocurrencies and NFTs (Non fungible Token) or any other similar token. However the definition of NFT will be specified by notification by the Central Government.
The definition of a Virtual digital asset has been inserted in clause 47A of section 2 of the Income tax Act, 1961.
- Any information or code or number or token generated through cryptographic means or otherwise, by whatever name called, providing a digital representation of value exchanged with or without consideration or representation of inherent value or functions as a store of value or a unit of account including its use as a financial transaction or investment
- A non fungible token or any other token of similar nature, by whatever name called.
- Any other digital asset, as the Central Government may by notification in the Official Gazette specify.
To simply put it, cryptocurrency like Bitcoin, Ethereum and Litecoin come under Virtual Digital assets and trading in them attracts tax liability.
Taxability of VDA:
For the purpose of taxing the virtual digital assets, a new scheme is proposed to be inserted w.e.f. A.Y. 2023-24. Proposed section 115BBH provides that any income from transfer of any virtual digital asset would be taxed @30% and no deduction with respect to any expenditure would be allowed while computing such income except cost of acquisition.
Also Section 194S is proposed to be inserted, w.e.f. 1.7.2022, to provide for TDS on payment in relation to transfer of Virtual digital asset@1% of such consideration.
Note: No set off of any loss is allowed from such income. No loss can be carried forward to subsequent assessment years.
EXEMPTION:
No tax would be required to be deducted if
- The payer is a specified person and aggregate value of consideration to a resident does not exceed Rs.50,000 during the FY.
- In any other case, such value of consideration to a resident does not exceed Rs.10,000 during the FY.
Now as to who belongs to the specified person has also been defined in the proposal.
A specified person would mean,
- Being an individual or HUF whose total sales or turnover from business or profession does not exceed Rs. 1 crore( in case of business) or Rs. 50 lakhs(incase of profession) during the FY immediately preceding the FY in which such VDA is transferred;
- Being an individual or HUF having income under any head other than the head ‘Profits and gains of business or profession’.
Also the provisions of section 203A related to TAN and 206AB related to Higher rate would not be applicable in case of specified persons mentioned above.
Taxation under the Head of other Sources:
And in order to tax gifts of virtual digital assets in the hands of the recipient, it is also proposed to amend section 56 to include virtual digital assets within the definition of property, when any person receives any benefit whose value exceeds Rs. 50,000.
The deemed income under this provision arises from the following transactions:
- Receiving monetary benefits without consideration;
- Receiving immovable property without consideration or for inadequate consideration; and
- Receiving specified movable properties without consideration or for inadequate consideration.
