In this dynamically changing world, virtual currency has replaced all the various lucrative assets and investment products around the globe. However, this block-chain technology, which claims to be non-regulatory and decentralized, has unfortunately confused the masses. Even with ambiguous regulatory methods implied on the Crypto transactions, middle class investors did not back down from pooling their money it.
Prior to the Finance Bill 2022, income generated from Virtual Assets was taxed under the Capital Gains head or business income under Profits and Gains from Business and Profession (PGBP), based on the usage by the assesse.
A virtual asset is a virtual illustration of an item that has price in a specific surroundings. This medium of trade or assets may be digitally traded, transferred or used for price or investment purposes.
Virtual Digital Assets as per Finance Act 2022, has been defined in a wide manner to, inter-alia, include any information, code, number or token not being Indian or foreign currency, and generated through cryptographic means or others. They provide 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 schemes and can be transferred, stored or traded electronically. Non-fungible tokens and; any other token of similar nature are included in the definition.
Virtual assets include:
1. Crypto currencies.
2. Non Fungible tokens.
Both of them are one of a kind software of block chain technology.
Let us understand by examples:
Cryptocurrencies, DeFi (decentralized finance) and non-fungible tokens (NFTs). Prima facie, excludes digital gold, central bank digital currency (CBDC) or any other traditional digital assets.
The following Virtual Digital Assets are excluded from the definition for Income tax purposes:
1. Gift cards or vouchers being a record that may be used to obtain goods or services or a discount on goods and services.
2. Mileage points, reward points, loyalty cards, being a record
(i) given without direct monetary consideration under an award, reward, benefit, loyalty, incentive, rebate or promotional program.
(ii) That may be used or redeemed only to obtain goods or services or a discount on goods or services.
3. Subscriptions to websites or platforms or applications.
4. A non – fungible token whose transfer results in the transfer of ownership of the underlying tangible asset, and the transfer of ownership of such underlying asset is legally enforceable.
Virtual Digital Assets, with effect from 1st April 2023.
It was announced that the government will be taxing the profits which are made during transactions of such private created assets or virtual digital assets at 30%.
This will be done regardless of any long-term or short-term holding by the investor.
No deduction on expenditure or allowance shall be allowed while computing such income, except the cost of acquisition.
TDS will be imposed on payments for the transfer of crypto assets at a rate of 1% for transactions over a certain threshold.
If a virtual digital asset investor incurs losses during the transaction, it can’t be set off against any other income.
The gifting of virtual digital assets has also been proposed to be taxed in the hands of the recipient.
As for now, there is not GST implication on VDAs however; it is being predicted by the people of the industry that the government might soon move towards this direction.
It is now a long-settled position that the legality of or manner of acquiring income has no bearing on its taxability. Therefore, a lack of clarity with respect to its tax treatment is not only depriving the crypto community of certainty and stability, but it is also robbing the nation’s treasury of its fair share of tax revenue. Hence this move is being praised for being the first step of government towards regulating Virtual Currencies like Crypto. We cannot overlook upon the intention of authorities behind the act. It is primarily to discourage masses from investing in crypto.
Comments