Budget 2022 was presented in Parliament on 01.02.2022, although cryptocurrency bill was not introduced in this session. However, government has introduced flat tax on income from digital assets.
What is digital Asset:
The word Digital assets has been explained in clause 47A of section 2 as under:
“It is further proposed to insert a new clause (47A) to the said section to define the expression “virtual digital asset” to mean,––
(a) any information or code or number or token (not being Indian currency or any 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 may be notified by the Central Government in the Official Gazette in this behalf,
It is further proposed to provide 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.
It is also proposed to define certain expressions for the purposes of the said clause.”
Thus, according to above definition this majorly covers cryptocurrency and NFT.
Tax on Digital asset:
Now, tax on such digital asset has been introduced which is as under:
“115BBH. (1) Where the total income of an assessee includes any income from the transfer of any virtual digital asset, the income-tax payable shall be the aggregate of––
(a) the amount of income-tax calculated on the income from transfer of such virtual digital asset at the rate of thirty per cent.; and
(b) the amount of income-tax with which the assessee would have been chargeable, had the total income of the assessee been reduced by the income referred to in clause (a).
(2) Notwithstanding anything contained in any other provision of this Act,––
(a) 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 this Act in computing the income referred to in clause (a) of sub-section (1); and
(b) no set off of loss from transfer of the virtual digital asset computed under clause (a) of sub-section (1) shall be allowed against income computed under any other provision of this Act to the assessee and such loss shall not be allowed to be carried forward to succeeding assessment years.”
As per the above provision below are bullet points for taxation of digital asset:
- Income from Digital asset shall be chargeable to tax at 30%.
- Income shall mean Sale consideration less cost of acquisition. No other expense shall be allowed to be deducted.
- No loss shall be set off against such income.
- Loss from digital asset shall not be allowed to be carried forward.
- Tax needs to be paid even even no other income is earned.
This amendment will be made applicable from 01.04.2023 and hence apply for AY 2023-24.
Thus, taxation of such digital asset can be compared to taxation on lotteries, prize money etc.
TDS on income from digital asset:
Section 194S has been introduced for deduction of tax on income from digital asset which is reproduced as under:
“‘194S. (1) Any person responsible for paying to a resident any sum by way of consideration for transfer of a virtual digital asset, shall, at the time of credit of such sum to the account of the resident or at the time of payment of such sum by any mode, whichever is earlier, deduct an amount equal to one per cent. of such sum as income-tax thereon:
Provided that in a case where the consideration for transfer of virtual digital asset is––
(a) wholly in kind or in exchange of another virtual digital asset, where there is no part in cash; or
(b) partly in cash and partly in kind but the part in cash is not sufficient to meet the liability of deduction of tax in
respect of whole of such transfer, the person responsible for paying such consideration shall, before releasing the consideration, ensure that tax has been paid in respect of such consideration for the transfer of virtual digital asset.
(2) The provisions of sections 203A and 206AB shall not apply to a specified person.
(3) Notwithstanding anything contained in sub-section (1), no tax shall be deducted in a case, where––
(a) the consideration is payable by a specified person and the value or aggregate value of such consideration does not exceed fifty thousand rupees during the financial year; or
(b) the consideration is payable by any person other than a specified person and the value or aggregate value of such consideration does not exceed ten thousand rupees during the financial year.
(4) Notwithstanding anything contained in this Chapter, a transaction in respect of which tax has been deducted under sub-section (1) shall not be liable to deduction or collection of tax at source under any other provisions of this Chapter.
(5) Where any sum referred to in sub-section (1) is credited to any account, whether called “Suspense Account” or by any other name, in the books of account of the person liable to pay such sum, such credit of the sum shall be deemed to be the credit of such sum to the account of the payee and the provisions of this section shall apply accordingly.
(6) If any difficulty arises in giving effect to the provisions of this section, the Board may, with the prior approval of the Central Government, issue guidelines for the purposes of removing the difficulty.
(7) Every guideline issued by the Board under sub-section (6) shall be laid before each House of Parliament, and shall be binding on the income-tax authorities and on the person responsible for paying the consideration on transfer of such virtual digital asset.
(8) Notwithstanding anything contained in section 194-O, in case of a transaction to which the provisions of the said section are also applicable along with the provisions of this section, then, tax shall be deducted under sub-section (1).
Explanation.––For the purposes of this section “specified person” means a person,––
(a) being an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business carried on by him or profession exercised by him does not exceed one crore rupees in case of business or fifty lakh rupees in case of profession, during the financial year immediately preceding the financial year in which such virtual digital asset is transferred;
(b) being an individual or a Hindu undivided family, not having any income under the head “Profits and gains of business or profession”
Some bullet points related to deduction of tax in case of sale of digital asset is as under:
- Any person making payment to a resident will have to deduct TDS on consideration paid for digital asset at the rate of 1%.
- No TDS needs to be deducted if consideration is to be paid by individual or HUF if the consideration being paid is less than Rs. 50,000 where such Individual or HUF don’t have any business and if they have business income then total turnover of business does not exceed Rs. 1 crore and professional receipts does not exceed Rs. 50 lakh.
- In any other case the limit of consideration will be kept at 10,000.
- If TDS deducted under this section no TDS or TCS shall be charged under any other provision.
- In case of this transaction getting covered under this provision and section 194-O then TDS shall be deducted under this section.
In majority cases of purchase of cryptocurrency people won’t be aware as to who is selling him the currency and hence in currency scenario the person will have no choice but to deduct TDS of the exchange as he will be making payment to exchange and hence a clarification is required as to how TDS needs to be deducted and rather it would have been better if they would have applied this TDS on e-commerce operator level under section 194-O rather than bringing it under separate section.
The TDS provision will be made applicable from 01.07.2022.
This will create a huge havoc in cryptocurrency market of India as the tax rate is very high and majority of people investing are small investors.
To read the full provisions and Finance Bill CLICK HERE.
Guidance on above article by:
CA Naman Maloo (C.A., B.Com)
He is currently working as Partner – Direct Tax with Jain Shrimal & Co. in Jaipur having experience in dealing Assessments, Tax Audit, Tax planning for NRI, Business planning and consultation.
E-mail: canamanmaloo@gmail.com | LinkedIn: Naman Maloo
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