Time is still the best answer
And this saying once again turned out to be true as The Finance Bill, 2022 brings clarity on much talked about "Crypto - Crypto and Crypto"
A lot of speculation was made by Gyani, Agyani and by each and every one about the crypto, some said crypto will be taxed at this rate some said at that etc. but only our madam Honourable Finance Minister Nirmala Sitharaman and her team knew what was in their minds.
But on the 1st of Feb, 2022 when the finance bill 2022 was presented all the speculation come to the conclusion of "Not to be Trusted" and the only person to be trusted is our Finance Minister Smt. Nirmala Sitharaman.
The Finance Bill, 2022
In this blog, I have tried to explain taxation of Virtual Digital Asset (which of course includes other digital assets also along with crypto) and yes crypto has not been given status of currency and it’s an asset on that to I have doubt of legality as taxing something does not make it "legal" as Income Tax Act tax income from betting and smuggling, also never the less it’s another topic of debate.
Now before we understand how the virtual digital asset (VDA) will be taxed let us understand what exactly VDA is.
By The Finance Bill, 2022 new section 2(47)(A) has been inserted which defines VDA as,
a) VDA to include
- Information eg. any document on blockchain network or can be podcast audio/video or anything that's contain any sort of information in it.
- CODE (created by any coding language)
- Number
- Tokens (basically Crypto)
b) NFTS and
c) Any other asset that government may include by way of notification.
But currency i.e. Indian currency and Foreign currency has been specifically excluded from the definition of the same
Now coming to the taxation of VDA earlier lot of confusion was there that VDA if been traded by the trader will be considered as business income, investment income will be consider as capital gains and so on but a solid clarity has been brought by Finance Bill, 2022 by inserting section 115BBH which means that's income transfer of VDA will taxable under the head income from other sources as if it would have been capital gains then definition of capital asset would have been amendment which has not been done hence not a capital gain income also if it would have business income then the charging section of PGBP section 28 would have amendment and as the same has not been amended hence also not business income as the only scope remains is of income from other sources.
Section 115 BBH says that transfer of VDA will be taxable at the rate of 30% and only cost (cost at which VDA was acquired) will be allowed as deduction.
Eg. You sell any crypto asset says bitcoin at 130 you incurred 2 as exchange brokerage 1 as currency exchange charges and 100 on acquiring the same now the only expense allowed to you would be of 100 that was incurred on acquiring the bitcoin, hence the tax will be levied at 30 (130-100) @30%.
Section further says that no other expense or allowance or set off of loss will be allowed.
Eg. I have income from exchange of VDA of 30 and loss from normal business of 20 then set off of business loss would not be allowed against the income from exchange VDA. However it is to be noted that intra head setoff will be allowed meaning thereby if i have profits from exchange of one or more VDA and loss from other then i can set off income from the loss.
TDS (Tax deducted at source) section 194S has been inserted which says any person making payment (Buyer) on transfer of VDA will be liable to deduct TDS at rate of 1% on transfer of VDA in excess of 10,000/- in normal case and in excess of 50,000/- in case of Individual or HUF not having turnover of 1cr from business or gross receipts of 50 lacs in case of the profession.
Now section 56(2)(x) (tax in case of gift) has also been amended which says that any person acquired any VDA for low consideration or no consideration in excess of 50,000/- will be liable to pay tax at rate of 30%.
Hope this has added some value to your Knowledge Bank!
Muchas Gracias!
CAclubindia
