Virtual Digital Assets or Crypto-currency or NFTs are the center of attraction in today’s finance world. One gets very eager to learn and trade in these avenues considering their nature of quick and big profits. As we all know, these assets have grown tremendously in value in the last decade.
Among these, the oldest one is
Bitcoin founded in 2009 by group of developers using the name of Satoshi
Nakamoto. One Bitcoin is worth Rs. 15.50 lakhs as on today having touched an
all time high of approx. Rs 55 lakhs last year. This brings into attention the
very volatile nature of Virtual Digital Assets.
Considering the fact that these
Virtual Digital Assets (VDA) are highly volatile by nature and are not governed
by Central Bank of any country in this world but backed only by blockchain
technology, Indian Government has very conservative stance for it. Due to this,
Tax on transfer of Virtual Digital Asset was introduced in Union Budget of
2022-23 to discourage in some way the use of Virtual Digital Assets in India.
Let us understand taxation of
Virtual Digital Asset in detail.
Definition of Virtual Digital
Asset(VDA) :-
Virtual Digital Asset (VDA) loosely
referred to as Crypto-currency of NFT is defined under section 2(47A) of The
Income Tax Act,1961 as:-
- Any information, code, number or token
generated through cryptographic means
- A non-fungible token(NFT) 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
Most Common VDAs available in
current market:-
1. Bitcoin
2. Ethereum
3. Doge coin
4. Binance Coin
5. Tether
6. NFTs etc
Renowned Companies accepting Bitcoin
in World
a)Microsoft
b)Paypal
c)Starbucks
d)Home Depot
e)CheapAir
f)AT&T
Section 115BBH governing taxation of
VDA
As per Section 115BBH of The Income
Tax Act, 1961 , Income from transfer of Virtual Digital Assets is taxable at
flat rate of 30%. This high rate of flat tax also brings our attention to the
intention of the government to restrict usage of Virtual Digital Asset in
India. Let us understand, how exactly Income from VDA and respective tax
will be calculated.
Calculation of Income from VDA:-
Proceeds from transfer of VDA
Less:-Cost of Acquisition of VDA
Calculation of Income Tax:-
If individual has traded in VDA
during the year, then his income tax will be total of these:-
a.
Total Taxable Income Less Income
from VDA—to be taxable as per Normal Slab rates plus
b. Income from VDA—taxable at 30%
Important points to note here are:-
-- Set off of loss incurred under
any other head of income shall not be allowed from Income from transfer of VDA
-- Any expenditure other than Cost
of Acquisition shall not be allowed as deduction while computing Income from
transfer of VDA
-- Loss arising from trading in VDA
shall not be allowed to carry forward for set off in next year
Head of Income under which Income
from transfer of VDA is taxable
It can be made taxable under any of
the below heads based on case to case basis
Profits and Gains from Business or
Profession
It can be taxable as Business income
if assesse is treating VDAs as his stock in trade.
Capital Gain
If the VDAs are treated as
investments by assesse, income from it can be assessed as capital Gains.
However, in such a case, if VDA is held for more than 36 months, it shall be
treated as Long term capital gain and if held for less than 36 months, then as
Short term capital gain.
In both the above heads of Income,
method of computation of Income from transfer of VDA and Flat tax rate of 30%
will remain same, however surcharge may differ as per particular case.
TDS on Transfer of VDA –Section 194S
Government has also introduced
section 194S of The Income Tax Act, 1961 to trace transactions relating
of transfer of Virtual Digital Assets. This section states that 1% TDS is to be
deducted by buyer of Virtual Digital Asset . Payer of Consideration on transfer
of VDA can be resident or non resident but payee is to be resident only ,
otherwise this section is not applicable.
However, in following cases this
section is not applicable, if the consideration is paid by:-
a.
*Specified Person and consideration
does not exceed Rs. 50000 for the financial year
b. Any person other than Specified Person and consideration
does not exceed Rs. 10000 for the financial year
*Specified person in this section
means:-
a.
Individual or HUF not having any
business income or
b. Individual or HUF having business income but Turnover/Gross
receipts does not exceeding Rs 1 cr in case of business and Rs 50 lakhs in case
of profession
Section 194S is made applicable from
01.07.2022. Therefore, an important point to note here is that for F.Y.
2022-23, the consideration of transfer of virtual digital assets in the Period
from 1.4.2022 to 30.6.2022 will be counted and considered for determining the
threshold limit of Rs. 50,000 or 10,000 (as case may be) in a year, but TDS u/s
194S will not be deducted on such transaction. TDS u/s 194S will be deducted
only on consideration for transfer of VDA credited or paid on or after
01.07.2022.
Implications of gifting of VDA:-
Gifting of Virtual Digital Asset is
taxable in the hands of recipient of the gift under Section 56(2)(x) of The
Income Tax Act, 1961 and shall be treated similar to any property other than
immoveable property.
In case of any inputs , please reach
me at gandotra.himanshu@gmail.com
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