Introduction

Virtual Digital Assets, especially cryptocurrencies & Non – Fungible Tokens (NFTs), have gained tremendous popularity in recent times and the volumes of cryptocurrency trading has increased substantially. To bring clarity on such asset classes, the government has proposed to define virtual assets, provided for taxation rules on such assets, viz., taxes on income arising out of virtual assets, and TDS in the recent Union Budget 2022.

Virtual Digital Assets - Defined

Virtual Digital Assets, especially cryptocurrencies & Non – Fungible Tokens (NFTs), have gained tremendous popularity in recent times and the volumes of cryptocurrency trading has increased substantially. To bring clarity on such asset classes, the government has proposed to define virtual assets, provided for taxation rules on such assets, viz., taxes on income arising out of virtual assets, and TDS in the recent Union Budget 2022.

Virtual Digital Assets - Defined

Virtual Digital Assets (VDA) shall include 

1. any information or number or token, generated through cryptographic means or  otherwise, providing a digital representation of value exchanged with or without consideration, with the promise or representation of having inherent value or 
2.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.
3.Also, includes a non - fungible token or any other token of similar nature; and 
4.any other digital asset, as the central government may by notification specify it in the official gazette.

Taxation on Virtual Digital Assets Transfer

In the Finance Bill 2022, a new Section 115 BBH has been proposed to be introduced with regard to taxation of Virtual Digital Assets. 

1.In Section 115 BBH, the income from transfer of any virtual digital assets shall be taxable at the rate of 30%.
2.No deduction in respect of any expenditure except cost of acquisition shall be allowed while calculating tax under Section 115 BBH. Hence the word cost of acquisition has been used in Union Budget 2022 so no indexation would be allowed in case virtual digital asset is held by assessee more than thirty six months.
3.No set off of any loss from transfer of the virtual digital assets shall be allowed against income computed under any other provision of the act.
4.No loss on account of digital virtual asset shall be carried forward to succeeding assessment years.
5.Also, gifting of virtual digital asset shall be chargeable as income in the hands of the recipient under the head Income from other sources. Gifting of virtual digital asset may also result in taxation in the hands of transferor at the rate of 30% in the absence of any exemption.

Read More