Presenting the Union Budget 2022, the Finance Minister of India has on 1 February 2022 proposed a new scheme to provide for taxation of virtual digital assets.
Virtual Digital Asset
A ‘virtual digital asset’ has also been now defined in the provisions of the Income-tax Act, 1961 to mean,
”(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:”
The Central Government would have the power to exclude any digital asset from the definition of virtual digital asset. Further, “non-fungible token” would mean such digital asset as the Central Government may, by notification in the Official Gazette, specify. The insertion of this definition is effective from 1 April 2022.
Rate of tax
Section 115BBH will be inserted in the Income-tax Act with effect from 1 April 2023 to provide that the income from transfer of virtual digital asset shall be calculated at the rate of thirty per cent.
Further, no deduction in respect of any expenditure (other than cost of acquisition) or allowance or set off of any loss shall be allowed to the assessee under any provision of the Act in computing this income.
No set off of loss from transfer of the virtual digital asset shall also be allowed against income computed under any other provision of the Act to the assessee. Such loss shall also not be allowed to be carried forward to succeeding assessment years.
TDS provisions
Further, as per the new Section 194S, to be inserted with effect from 1 July 2022, the Finance Bill proposes to provide for TDS on payment made in relation to transfer of virtual digital asset at the rate of 1 per cent of such consideration above a monetary threshold.
Gift also to be taxed
Gift of virtual digital asset is also proposed to be taxed in the hands of the recipient. For this purpose, the Finance Bill 2022 proposes to amend Explanation to clause (x) of sub-section (2) of Section 56 of the Act to inter-alia, provide that for the purpose of the said clause, the expression “property” shall have the meaning assigned to it in Explanation to clause (vii) and shall include virtual digital asset. This amendment is effective from 1 April 2023.
