Crypto Currency Or Virtual Digital Assets Taxation

TAXATION OF VIRTUAL DIGITAL ASSETS (VDA)

Virtual Digital Asset for the purpose of deduction of tax under this section means:

• Any information, code, number or token which is generated through cryptographic means, also known as crypto currency. Eg. Bitcoin, ethereum etc.
• A Non-Fungible Token (NFT) or any other token of similar nature as notified by Govt.
• Any other digital asset, as notified by the Central Govt.

Following shall not be treated as VDA

1. Gift Card or Vouchers, being a record that may be used to obtain goods or services or a discount or goods or services. 2. Mileage points, reward points, or loyalty card etc. 3. Subscriptions to websites or platforms or applications.

Taxability of Virtual Digital Asset under section 115BBH

Section 115BBH is proposed in finance Bill,2022. income from transfer of any virtual digital asset shall be taxable at the rate of thirty percent.

1. No deduction in respect of any expenditure except cost of acquisition shall be allowed while calculating tax under section 115BBH 2. No indexation would be allowed if in case virtual digital asset is held by assessee more than thirty six month. 3. No set off of any loss from transfer of the digital virtual asset shall be allowed against income computed under any other provision of the act. 4. No loss on account of digital virtual asset shall be carried forward to succeeding assessment years 5. Even if the total income including income from transfer of VDA is less than the basic exemption limit tax rate would be 31.2% including Health and Education cess. 6. As Section 115BBH does not prohibit such rebate, So Rebate u/s 87A would be allowed.

Tax deduction at source under section 194S

Finance Act 2022 inserted a new section 194S in the Income-tax Act, 1961 The new section mandates a person, who is responsible for paying to any resident any sum by way of consideration for transfer of a virtual digital asset (VDA), to deduct an amount equal to 1% of such sum as income tax thereon.

The tax deduction is required to be made at the time of credit of such sum to the account of the resident or at the time of payment, whichever is earlier.

Frequently Asked Questions

What is the rate at which tax is to be deducted under Section 194S?

Tax is to be deducted at the rate of 1% of the consideration. If the payee does not furnish his/her PAN, tax has to be deducted at 20%

What is the maximum amount upto which no tax needs to be deducted under this section?

No tax needs to be deducted if the consideration payable by a specified person does not exceed Rs. 50,000 during the financial year. No tax needs to be deducted if the consideration payable by any person other than a specified person does not exceed Rs. 10,000 during the financial year.

Who is a specified person for Section 194S?

a) Individual /HUF whose sales , gross receipts or turnover from business or profession doesn't exceed 1cr in case of business or 50L in case of profession during financial year immediately preceding financial year in which the asset is formed

b) Individual /HUF not having any Profits and gains of business or profession (PGBP) income.

Is the possession of a valid Tax deduction and collection account number (TAN) mandatory for deducting tax under this section?

No, TAN is not mandatory for deducting tax under Section 194S.

Compute the Income Tax payable if Consideration received for transfer of VDA is Rs.62,000/- and Cost of Acquisition is Rs.21,000/-

Income of Rs.41,000/- (62,000-21,000) from transfer of VDA would be taxable @30% (plus cess of 4%). even if the total income including income from transfer of VDA is less than the basic exemption limit. The Tax would be 12,792/-

Key Takeaways

• High Tax Rate: Virtual Digital Assets are taxed at 30% under Section 115BBH
• No Indexation: No benefit of indexation even for long-term holdings
• TDS Requirements: 1% TDS applicable on VDA transfers under Section 194S
• No Loss Set-off: Losses from VDA cannot be set off against other income
• Threshold Limits: Different TDS thresholds for specified and non-specified persons

Conclusion

The taxation of Virtual Digital Assets in India has been structured to ensure proper tax collection while maintaining simplicity. The flat 30% tax rate and 1% TDS provisions make it essential for crypto investors and traders to understand their tax obligations and maintain proper records of their transactions.

For personalized advice on crypto taxation and compliance, consult with a qualified Chartered Accountant who specializes in digital asset taxation.