It’s still a yaksh question, Why Taxation of Virtual Digital Assets (VDA) doesnot make it Legal in India ?
Trading of crypto currency, NFT and other virtual digital assets (VDA) is rising on a rapid pace. The tax proposals by the Budget 2022 will achieve some level of certainty for the Income Tax Calculation. However legality of such transactions are yet to be blessed by the Indian Government. Taxation of VDA is being clarified by inserting section 115BBH in the Income Tax Act.
HIGHLIGHTS:
--Income from sale of VDA, such as CryptoCurrency, NFT etc would be taxed at base rate of 30% in India.
--No other expenses would be allowed as deduction, other than cost of acquisition.
--Loss from any other source cannot be set-off against income from VDA.
--Loss arising from sale of VDA cannot be setoff against any other income.
--Loss arising from VDA cannot be carried forward.
Still, cost of acquisition and sales consideration has not been defined, it is unclear whether brokerage paid, will be part of cost or will be deducted from sales consideration or not. This amendment will be applicable from 01-04-2022, hence the taxability of income from VDA is still open for interpretation for FY 2021-22.
Provision of taxability, does not itself makes the transaction legal. For determining legality of Cryptocurrency, it will be left to The CryptoCurrency and Regulation of Official Digital Currency Bill, 2021. The scope of income tax act is restricted to provide for taxability of any transaction and even illegal transactions are being taxed.
Gifting of virtual digital asset have also been brought under tax ambit, by including it in the definition of property, under section 56. Therefore any gift of more than INR 50,000 (except few circumstances) would be taxable in the hands of recipient of such digital asset. It is generally seen that tax base is widened if tax is collected by way of TDS. Therefore, section 194S is proposed to be inserted which provided the following:
TDS deduction to be 1% on transactions. For specified persons TDS only to be deducted if value of the transaction exceeds INR 50,000 in a financial year. For other than specified person, TDS to be deducted if value of the transaction exceeds Rs. 10,000 in a particular financial year.
Important thing about Crypto Taxation is, the way Crypto transactions are conducted, buyer is not aware about the whereabouts of the seller. Therefore it will be impossible to deduct TDS of seller. In this case buyer may deduct TDS of the intermediary portal and take a reimbursement from them, which will be very cumbersome process. It would have been better, if the TDS would have been deducted by the crypto-portal itself, as an e-commerce operator under section 194-O.
If a NRI purchases VDA from a resident, it may have to take a TAN number in India and deduct the TDS. This will be again a very onerous responsibility.
Trading of crypto currency, NFT and other virtual assets is rising on a rapid pace. The above proposals by the budget will achieve some level of certainty of the Income Tax calculations only. However legality of such transactions are yet to be blessed by the government of India. Additionally, its taxability with relation to GST transaction is also not very clear. It will be great, if government clarifies its position and rest this controversy, once and forever. Shall conclude with the words, Earn & Pay Tax…...….let them fix Legality issues.
Disclaimer : This is purely a knowledge sharing article, not offering or influencing any deal or transaction or investments.
Birla WP Management Co.
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