The Indian Government has, in their Union Budget 2022 Proposal introduced Virtual Digital Assets and a specific taxation regime for such assets.
Crypto in India will now fall under 'virtual digital assets' for Income Tax purpose. This indicated that cryptocurrencies will not be treated as a currency, but as an specific asset class.
Here is a quick summary of the relevant provisions announced:
In Section 2 of the Income Tax Act, Virtual Digital Assets have been defined. This definition will also include
| Any information or code or number or token generated through cryptographic means or otherwise | |
| Non Fungible Token (NFT's) |
Definition of Property in Section 56 to include Virtual Digital Assets as defined in Section 2.
The implication for this change is important. It means Gifts of Virtual Digital Assets are specifically covered under the Income Tax Act.
Section 115BBH has been introduced. This section addresses the following
| ncome Tax Rate - Income from Transfer of Digital Assets to be taxable at 30% | |
| No deduction in respect of any expenditure (other than cost of acquisition) (what about gas fee) | |
| Set Off and Carry Forward of Losses |
Section 194S has been introduced. The following are the key points to be noted in this section
| Any person responsible for paying to a resident, any sum by way of consideration for transfer of a virtual digital asset shall be liable to deduct TDS @ 1%. | |
| For specified persons, no tax is required to be deducted where value of consideration does not exceed Rs 50,000/- during the financial year | |
| For specified persons, no tax is required to be deducted where value of consideration does not exceed Rs 50,000/- during the financial year | |
| For any other person, the above limit stands at Rs 10,000/- | |
| Specified person is defined in Explanation given to this section |
The industry is seeking further clarifications, but the first steps have now been taken by the government.
Questions remaining include:
| Is there going to be a specific definition for Transfer in relation to Virtual Digital Assets? Transfer in the web 3.0 ecosystem also includes transfer across wallets. Whether that is in the purview of Income Tax is yet to be clarified. |
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| Whether gas fee can be added to cost of acquisition? | |
| Implications for Cryptocurrency exchanges as the TDS Rules kick in from July 2022 | |
| Securing your digital assets | |
| Compliant interaction with the ecosystem | |
| Assessment and Notices from Income Tax Authority |
If any clarification is sought, please contact our Virtual Digital Assets (VDA) Regulatory and Tax team.