In the Union Budget 2022, the Finance Minister, Nirmala Sitharaman had proposed the Scheme for taxation of virtual digital assets wherein the Crypto and Metaverse Investors to pay 30% Income Tax for Transfer of Virtual Digital Assets.
Virtual digital assets have gained tremendous popularity in recent times and the volumes of trading in such digital assets have increased substantially. Further, a market is emerging where payment for the transfer of a virtual digital asset can be made through another such asset. Accordingly, a new scheme to provide for taxation of such virtual digital assets has been proposed in the Bill.
The proposed section 115BBH seeks to provide that where the total income of an assessee includes any income from transfer of any virtual digital asset, the income- tax payable shall be the aggregate of the amount of income-tax calculated on the income of transfer of any virtual digital asset at the rate of 30% and the amount of income-tax with which the assessee would have been chargeable had the total income of the assessee been reduced by the aggregate of the income from transfer of virtual digital asset.
What is a virtual digital asset?
To define the term “virtual digital asset”, a new clause (47A) is proposed to be inserted into section 2 of the Act. As per the proposed new clause, a virtual digital asset is proposed to mean any information or code or number or token (not being Indian currency or any foreign currency), generated through cryptographic means or otherwise, by whatever name called, providing a digital representation of value which is 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 and includes 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.
Effects of crypto investors
As per the provision, the 30% Income Tax shall be payable on any profit generated through Cryptocurrency. No deduction in respect of any expenditure (other than the cost of acquisition) or allowance or set-off of any loss shall be allowed to the assessee under any provision of the Act while computing income from the transfer of such asset.
No set-off of any loss arising from the transfer of virtual digital assets shall be allowed against any income computed under any other provision of the Act and such loss shall not be allowed to be carried forward to subsequent assessment years.
In order to widen the tax base from the transactions so carried out in relation to these assets, it is proposed to insert section 194S to the Act to provide for deduction of tax on payment for the transfer of virtual digital asset to a resident at the rate of one percent of such sum. However, in case the payment for such transfer is wholly in kind or in exchange of another virtual digital asset where there is no part in cash; or partly in cash and partly in kind but the part in cash is not sufficient to meet the liability of deduction of tax in respect of the whole of such transfer, the person before making the payment shall ensure that the tax has been paid in respect of such consideration.
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