How will the assets be taxed?

On Friday, March 25, 2022, the Lok Sabha passed the Finance Bill 2022. The Bill was passed with over 30 amendments in the Finance Bill as introduced on February 1, 2022. New amendments have been made and some proposed amendments have been deleted. or modified.

Some of the important provisions that crypto investors should be aware of before investing in virtual digital assets are listed below:

– The loss of a virtual digital asset (“VDA”) cannot be deducted from the income of another VDA.

– The definition of “transfer” applies even if the ADV is not held as capital property.

– Section 115BBH of the Income Tax Act supersedes all other provisions to tax VDA transfer income at 30%.

– Item 115BBH calculation provision would not fail even if there is no VDA acquisition cost.

A virtual digital asset is defined in Section 2 (47A) of the Income Tax Act.

A virtual digital asset is offered to mean any information or code or number or token (being neither Indian currency nor foreign currency), generated by cryptographic means or otherwise, however named, providing a digital representation of value which is traded with or without consideration, with the promise or representation of having inherent value, or functions as a store of value or unit of account and includes its use in any financial transaction or investment, but not limited to , investment plans and can be transferred, stored or traded electronically.

The non-fungible token and any other token of the same nature are included in the definition.

TAXATION UNDER SECTION 115 BBH

Where a assessed person’s total income includes any income from the transfer of a virtual digital asset, the income tax payable will be the total of:

(a) the amount of income tax calculated on the income from the transfer of such virtual digital asset at the rate of thirty percent; and

(b) the amount of income tax which the assessee would have been liable to pay if the total income of the assessee had been reduced by the income referred to in sub-paragraph (a).

Notwithstanding anything contained in any other provision of this Act,

(a) no deduction in respect of any expense (other than the cost of acquisition) or allowance or set-off for any loss shall be permitted to the assessee under any provision of this Act in computing such income in paragraph (a) of sub-paragraph -section 1); and

(b) no set-off for loss resulting from the transfer of the virtual digital asset calculated under subparagraph (a) of subsection (1) shall be allowed against the income calculated under any other provision of the this Act for the assessed and such loss will not be carried forward to subsequent assessment years.

Cryptocurrency tax will be separate from taxes levied on capital gains from other investments such as equity and fund investments.

TAX DEDUCTED AT SOURCE (TDS):

1% TDS will be deducted by the buyer, on VDA transfers, whether the transaction is profit or loss.

COMPENSATION AND CARRY-OVER OF LOSSES

It is pertinent to note here that the loss of one type of VDA cannot be offset against the gains from a transaction involving another VDA when calculating tax.

No set-off or carry-forward of losses is permitted to investors in virtual digital assets.

EXPENSES ALLOWED TO BE DEDUCTED FROM THE SALE VALUE

No deduction (other than the cost of acquisition) in respect of any expense will be permitted under the provisions of the Act.

Infrastructure costs incurred in mining VDAs (e.g. crypto assets) will not be treated as acquisition costs as they will be of the same nature as capital expenditures which are not permitted as as deduction in accordance with the provisions of the law.

TAXABILITY OF THE DONATION OF DIGITAL ASSETS

Persons who receive digital assets as gifts would also be taxed under Article 56(2)(x).

GST

In addition to the above tax provisions, the government is also working on classifying cryptocurrency under the Goods and Services Tax (GST) to levy a tax on the total value of transactions.

The current law has no clear classification for cryptocurrency and the 18% GST is levied only on services provided by crypto exchanges classified as financial services.

Clarification is awaited on the collection of GST on cryptocurrencies and whether it would be levied on the total value.

CONCLUSION

Meanwhile, the Indian government is working on cryptocurrency legislation. A crypto bill was listed for consideration in the winter session of parliament, but it was not picked up. According to reports, the government needs more time to finalize the bill.

The way the Indian government has implemented the taxation of VDAs clearly indicates the government’s intention to deter investors from investing in this volatile asset class and encourage investment in the central bank backed digital currency. by the government, which will soon be launched.

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Posted: Wednesday 06 April 2022, 14:34 IST

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