BUDGET 2022: TAXATION ON VIRTUAL DIGITAL ASSET
On 1st Feb 2022, Hon’ble Finance Minister Nirmala Sitharaman has presented her fourth Budget. The budget proposes a new definition of virtual digital assets covering any information or code or number or token providing a digital representation of value exchanged, non-fungible token etc and also proposes a new scheme of taxation for such 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 a new scheme to provide for taxation of such virtual digital assets has been proposed in the Bill
What is virtual Digital Asset?
‘’Virtual Digital Asset’’ means 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’’.
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.’.
Scheme for Taxation of Virtual Digital Assets –
Section 115BBH in Finance Bill 2022 seeks to provide that where the total income of an assessee includes any income from transfer of any virtual digital asset, the incometax payable shall be the aggregate of the amount of income-tax calculated on income of transfer of any virtual digital asset at the rate of 30% and the amount of income-tax with which the assessee would have been chargeable had the total income of the assessee been reduced by the aggregate of the income from transfer of virtual digital asset.
Taxability of virtual digital asset:
Amendment will take effect from A.Y 2023-24 –
(i) wholly in kind or in exchange of another virtual digital asset where there is no part in cash; or
(ii) 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 before making the payment shall ensure that the tax has been paid in respect of such consideration.
Deduction of Expenditure:
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 while computing income from transfer of such asset.
Setoff of Losses on Transfer of such virtual digital assets:
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. This amendment will take effect from 1st April, 2023 and will accordingly apply in relation to the assessment year 2023-24 and subsequent assessment years.
What are the Exemption under section 194S:
In case of specified person- No tax is required to be deducted in case payer is specified person and amount of consideration is less than Rs 50000 during the financial year
In any other case, said limit is proposed to be Rs 10000 during the financial year.
Who is specified person- Means a person- being an individual or Hindu undivided family whose total sales, gross receipts or turnover from the business carried on by him or profession exercised by him
I. does not exceed one crore rupees in case of business or fifty lakh rupees
II. in case of profession, during the financial year immediately preceding the financial year in which such virtual digital asset is transferred;
Taxation of Gifting of Virtual Digital Assets:
In order to provide for taxing the gifting of virtual digital assets, it is also proposed 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.
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