axation on Virtual Digital Assets
Virtual digital assets have gained tremendous popularity in recent times and the volumes of trading in such digital assets has increased substantially. Further, a market is emerging where payment for the transfer of a virtual digital asset can be made through another such asset. Accordingly considering the magnitude of transaction in digital assets a new scheme to provide for taxation of such virtual digital assets has been proposed in the Finance Bill 2022
Sections of Income Tax Act 1961 Covering Virtual Digital Assets
- In section 2 of the Income-tax Act,––
clause (47), the following clause shall be inserted, namely:––
(47A) “virtual digital asset” ––
- Amendment in Section 56
- Insertion of new section 115BBH
- Insertion of new section 194S
Detailed Discussion
Definition:
Section 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.’.
Key Points
Government has first time officially termed digital assets including Cryptos assets under Virtual Digital Assets. these comprise all the cryptos as Bitcoin, Ethereum, etc and any other non-fungible tokens (NFT) or any other digital assets as Central Government may notify. Coins used in the games are not covered in the definition of Virtual digital assets u/s 2(47A)
Taxation of Income From Virtual Digital Assets
Insertion of new section 115BBH
28. After section 115BBG of the Income-tax Act, the following sections shall be inserted with effect from the 1st day of April, 2023, namely:
‘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.
Key Points
- Applicable from Assessment Year 2023-24
- Taxable @30% (Excluding surcharge and Cess),
- No deduction in respect of any expenditure (other than cost of acquisition)
- No allowance or set off of any loss shall be allowed to the assessee under any provision of the Act while computing income from transfer of such asset.
- No set off of any loss arising from transfer of virtual digital asset shall be allowed against any income computed under any other provision of the Act and such loss shall not be allowed to be carried forward to subsequent assessment years.