As we all recollect that the Finance Act 2022 was passed with some changes to the Finance Bill introduced on February 1, 2022.
The Bill stated that a tax of 30% would be charged on income arising from Virtual Digital Assets w.e.f. April 1, 2022 and TDS @ 1% will become applicable w.e.f. July 1, 2022.
Pursuant to the above, the Central Board of Direct Taxes, Ministry of Finance, Department of Revenue, on June 22, 2022, came out with detailed guidelines for removal of difficulties under Section 194S(6) of the Income Tax Act, 1961.
Chapter XVII of the Income Tax Act, 1961 deals with provisions relating to collection and recovery of tax. A new Section (Section 194S) was introduced vide Finance Act, 2022 which provides for Payment on Transfer of Virtual Digital Assets. The said provision will become applicable for FY 2022-23 w.e.f. July 1, 2022.
The new section mandates a person, who is responsible for paying to any resident any sum by way of consideration for transfer of a virtual digital asset (VDA), to deduct an amount equal to 1% of such sum as income tax thereon. The tax deduction is required to be made at the time of credit of such sum to the account of the resident or at the time of payment, whichever is earlier.
Provided that in a case where the consideration for transfer of virtual digital asset is:
(a) wholly in kind or in exchange of another virtual digital asset, where there is no part in cash; or
(b) 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 whole of such transfer, the person responsible for paying such consideration shall, before releasing the consideration, ensure that tax required to be deducted has been paid in respect of such consideration for the transfer of virtual digital asset.
This deduction is not required to be made in the following cases:-
(i) the consideration is payable by a specified person and the value or aggregate value of such consideration does not exceed fifty thousand rupees during the financial year; or
(ii) the consideration is payable by any person other than a specified person and the value or aggregate value of such consideration does not exceed ten thousand rupees during the financial year.
“Specified person” means a person,
If the PAN of the deductee (buyer) is not available, then the tax at the time of transfer of VDA will be deducted at the rate of 20%. Further, if an individual has not filed his/her income tax return, then TDS will be deducted at a higher rate of 5% (as against normal rate of 1%), if the payer is not a specified person.
A new TDS certificate in Form16E has been introduced. The buyer who deducts tax at the time of making payment will be required to issue Form 16E to the seller of VDA within 15 days from the due date of furnishing the challan-cum-statement in Form26QE.
It is pertinent to note that these guidelines will apply to cases where transfer of VDA is taking place on or through an Exchange and also other transactions like peer to peer and others, where the provisions of section 194S of the Act shall apply to the extent and in the manner as clarified by the CBDT.
Primarily the responsibility to deduct tax is of the buyer. Therefore in peer to peer transactions, the buyer is required to deduct tax. However, when the trades are being conducted through an exchange, the responsibility to deduct tax will vary depending on the parties involved (Buyer, Exchange or Broker) and the ownership of the VDA.
While TDS on loss making transactions is refundable, the inability to offset crypto losses against gains still needs to be addressed. The clarification issued by CBDT has come as a breather to the investors who are now in a position to invest and trade. This initiative by the Government will go a long way in creating an ecosystem for virtual digital assets which will be beneficial to all stakeholders.
What is UOI’s stance on this!
For a long time now, there were discussions whether “Crypto” will be considered as a legal tender or not! The Budget 2022 announcement has made it clear that, in India, Crypto will be considered as a “Virtual Digital Asset” as per the newly inserted Clause 47A in Section 2 of the Income Tax Act, 1961.
Virtual Digital Assets (‘VDA’) means:
(a) Any information or code or number or token (not being Indian currency or foreign currency), generated through cryptographic means or otherwise, by whatever name called, providing 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 scheme; and can be transferred, stored or traded electronically;
(b) Non-fungible Token (NFT) or any other token of similar nature, by whatever name called;
(c) Any other digital asset, as the Central Government may, by notification in the Official Gazette specify.
In simple words, the virtual digital asset shall mean a cryptocurrency, NFT or another virtual digital asset as notified by the Central Govt. It will not cover subscriptions to any OTT platform, mobile applications, e-commerce platforms, etc.
The Central Government may, by notification in the Official Gazette, exclude any digital asset from the definition of a virtual digital asset subject to such conditions as may be specified therein. Such powers might have been given to the Central Govt. to exclude India’s first digital currency or Central Bank Digital Currency (CBDC).
Notably, Indian currency and foreign currency as defined under the Foreign Exchange Management Act, 1999, have been excluded from the ambit of VDAs.
While VDA includes cryptocurrencies, the definition can cover a wide variety of digital assets which is implied by the wording ‘or otherwise’ in the phrase “generated through cryptographic means or otherwise”. The definition is also made exhaustive with the words ‘information’, ‘code’, ‘number’.
The Government is in the process of passing The Crypto Currency and Regulation of Official Digital Currency Bill, 2021 but the same has been delayed as the Government is seeking technical inputs from RBI as RBI has concerns about private digital currencies citing macroeconomic and financial stability issues.
From the above is it clear to us that Crypto is not a legal tender but is considered as a Virtual Digital Asset. The question remains whether one can buy / sell or trade in it??
The Budget 2022 has announced an income tax @ 30% on the income from transfer of digital assets with no set offs allowed except the cost of acquisition being the only allowable deduction.
The loss on sale of digital assets cannot be set off against any other income nor allowed to be carried forward to subsequent tax years.
To regulate and capture details of the transactions, tax shall be deducted (TDS) @ 1% on payment made to the seller of crypto currency by crypto exchange or any other payer, if the total payment during the tax year is above INR 10,000. The threshold limit for TDS would be INR 50,000 a year for specified persons which include individuals and HUFs who are required to get their accounts audited under the income Tax Act. These provisions, applicable from July 1 2022, primarily requires the crypto exchanges to deduct taxes whenever required.
Gifting of digital assets will also be taxed in the hands of the receiver. The taxability will arrive only if the value of the Virtual Digital Asset exceeds INR 50,000 but there will be no tax liability in case of receipt of such assets through a relative as defined under the tax law on the occasion of marriage, etc.
The Income Tax forms from April 1, 2022 will have a separate column for making disclosures on gains made from crypto currencies and paying taxes.
Virtual Digital Assets (VDA) are now a part of Moveable assets under income tax Act Sec 56(2)(x).
The Reserve Bank of India has been working on the Central Bank Digital Currency (CBDC) for the past 18-24 months which will be issued by the Reserve Bank of India after considering risks like cyber-security and counterfeiting in mind. Work is in progress on wholesale and retail use of CBDC and it will be considered as another form of Fiat currency.
CONCLUSION: There are currently no laws in India that prohibit buying, selling or trading in crypto currency. Further, taxing on the profits of Crypto trading makes it clear that Crypto currency is not illegal and Crypto Trading is legal. It also clarifies that Crypto is a legal and tradable asset. However, the heavy taxes levied on the income generated from dealings in Crypto and the TDS provisions coupled with the proposal to launch CBDC, clearly indicates the Government’s reluctance to give Crypto a “Currency” status. Government is studying and analysing crypto and has no immediate plans to declare it as a legal tender. However, what is important is that Crypto is here to stay.
The content of this document do not necessarily reflect the views / position of RKS Associate, but remains a probable view. For any further queries or follow up please contact RKS Associate at admin@rksassociate.com