The Indian government has introduced taxability regulations for virtual digital assets through the Finance Bill 2022, effective from April 1, 2022. This article explores the tax consequences arising from the transfer of virtual digital assets by assesses.
- Understanding Virtual Digital Assets
- Exclusions from Virtual Digital Assets
- Taxability of Virtual Digital Assets from April 1, 2022
- Income Taxation Category
- TDS on Payments for Transfer of Virtual Digital Assets
- Want to File Income Tax Return (ITR) Complying All Rules and Regulations? Contact Our Experts
Understanding Virtual Digital Assets
Virtual digital assets refer to any information, code, number, or token generated through cryptographic or other means, serving as a digital representation of value exchanged with or without consideration. These assets promise inherent value, function as a store of value or unit of account, and can be used in financial transactions or investments, including investment schemes. They can be electronically transferred, stored, or traded. Notable examples include cryptocurrencies like Bitcoin, non-fungible tokens (NFTs), and other digital assets specified by the central government through official gazette notifications.
Exclusions from Virtual Digital Assets
The following items are excluded from the definition of virtual digital assets:
- Gift cards or vouchers that can be used to obtain goods, services, or discounts.
- Reward points or loyalty cards obtained without direct monetary consideration.
- Subscriptions to websites, platforms, or applications.
Taxability of Virtual Digital Assets from April 1, 2022
The Finance Act 2022 introduced Section 115BBH, which imposes a flat tax rate of 30% on income resulting from transactions in virtual digital assets occurring on or after April 1, 2022. Deductions are allowed only for the cost of acquisition of virtual digital assets from the consideration received. No deductions for expenses, allowances, or losses are permitted under any provisions of the Income Tax Act for computing income. Losses from virtual digital asset transfers cannot be set off against other income or carried forward to subsequent assessment years.
Income Taxation Category
The government has not specified the category under which virtual digital assets will be taxed. However, the following categories are possible:
- Business Income: If a taxpayer engages in frequent and significant transactions involving virtual digital assets, it may be considered as business income taxable at a rate of 30% plus surcharges and cess.
- Capital Gain Income: Virtual digital assets purchased for investment purposes may fall under the category of capital gains. Assets held for more than 36 months are considered long-term, while those held for a shorter period are treated as short-term capital gains.
- Income from Other Sources: Infrequent transactions in virtual digital assets are likely to be reported as income from other sources.
TDS on Payments for Transfer of Virtual Digital Assets
As per Section 194S, any person making payments to residents for transferring virtual digital assets must deduct income tax at a rate of 1% at the time of credit or payment, whichever is earlier. However, starting from July 1, 2022, no deduction is required if the consideration paid during the financial year does not exceed Rs. 50,000 (for specified persons) or Rs. 10,000 (for others). Additionally, if tax has been deducted under Section 194S, no other TDS/TCS provisions will apply to the transaction.
Want to File Income Tax Return (ITR) Complying All Rules and Regulations? Contact Our Experts
Disclaimer: Please note that the content provided in this article is for educational purposes only and represents the author’s point of view. It is crucial to consult with a qualified financial advisor or tax professional before making any decisions based on the information provided. Your unique financial situation may require personalized guidance, and professional advice ensures accurate decision-making tailored to your specific needs.
