Taxation on Cryptocurrency

taxation on cryptocurrency
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Last updated on February 22nd, 2022 at 05:05 pm

Taxation on Cryptocurrency

The Government of India has taken a conservative stand of taxing the income derived from Virtual Digital Asset in Union Budget 2022. This does not mean that the final call on the legal sanity of cryptocurrencies has been taken.

Crypto Bill which intended to completely ban cryptocurrency was tabled in the Winter Session 2021 of Parliament. Crypto Bill is not listed again in the upcoming Parliament session.

Considering the growing crypto market and as per the Budget Speech, the Reserve Bank of India is likely to introduce India’s own digital currency backed by blockchain technology called “Digital Rupee” in the year 2022-23.

 

Virtual Digital Asset defined u/s 2(47A)

Virtual digital asset means –

(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;

(b) a non-fungible token or any other token of similar nature, by whatever name called;

(c) any other digital asset, as the Central Government may, by notification in the Official Gazette specify:

Provided that the Central Government may, by notification in the Official Gazette, exclude any digital asset from the definition of virtual digital asset subject to such conditions as may be specified therein.

Explanation.––For the purposes of this clause,––

(a) “non-fungible token” means such digital asset as the Central Government may, by notification in the Official Gazette, specify;
(b) the expressions “currency”, “foreign currency” and “Indian currency” shall have the same meanings as respectively assigned to them in clauses (h), (m), and (q) of section 2 of the Foreign Exchange Management Act, 1999.’.

 

What is the rate of tax for income from the virtual digital currency?

As per section 115BBH(1)(a), Income derived from the transfer of virtual digital assets will be taxed at 30%.

Note Provisions of education cess, interest, and surcharge if any will also be applicable.

 

What can be allowed as a deduction while deriving income from virtual digital currency?

As per section 115BBH(2)(a), Only the cost of acquisition will be allowed as a deduction while deriving income from the virtual digital currency.

Note: No other expenditure will be allowed as a deduction. 

Note: The holding period of the VDA does not matter and the concept of indexation will not apply to VDA.

 

Can loss from any other income be set off against income from the virtual digital assets?

As per section 115BBH(2)(a), Loss from any other income can not be set off against income from the virtual digital assets.

 

Can loss derived from the virtual digital currency be set off?  

As per section 115BBH(2)(b), Loss derived from the virtual digital currency can not be set off against any other income.

 

Can loss derived from the virtual digital currency be carried forward?

As per section 115BBH(2)(b), Loss derived from the virtual digital currency can not be carried forward.

 

When will the newly introduced section be effective?

Section 115BBH will be effective from 1st April 2023 i.e. FY 2022-23 (AY 2023-24) onwards.

 

TDS on Virtual Digita Asset

As per section 194S, TDS will be deducted @ 1% if the amount is paid for the transfer of Virtual Digital Asset to a resident of India. TDS shall be deducted for non-filers of return.

TDS shall not be deducted if the amount paid is

  • Rs 50,000/- or more to a specified person in a financial year.
  • Rs 10,000/- or more to any other than a specified person in a financial year.

Note: Specified Person will be an Individual/HUF having

  • Income from the business whose gross turnover does not exceed Rs 1 Crore or
  • Income from the profession whose gross receipts does not exceed Rs 50 Lakhs or
  • Income from salary, house property, capital gain, other sources

If you receive a virtual digital asset as a gift will it be taxed?

It was announced in Budget 2022. If anyone receives VDA from someone without paying adequate consideration then it will be treated as a gift and taxed in the hands of the recipient.

Unanswered Questions

  • Under which head income from the virtual digital assets will be taxed income from PGBP or CG or IFOS??
  • Deductions under  Chapter VI A will be allowed out of income from the virtual digital assets??
  • Rebate u/s 87A will be allowed out of income from the virtual digital assets??

 

 

 

Disclaimer: The above content is for general information purpose only and does not constitute professional advice. The author/ website will not be liable for any false, inaccurate, incomplete information. Any reliance you place on above content is therefore strictly at your risk.

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About CA Ankita Khetan 196 Articles
Ankita is a Chartered Accountant in practice and holds a Diploma in IFRS (from ACCA, UK). She is also a Commerce PG and Certified Independent Director (from IICA). She holds a certification in Forex and Treasury Management. Her area of expertise is GST and Income tax. She is passionate about reading, writing, and sharing knowledge on areas related to finance and taxation.

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