Taxation of Virtual Digital Assets in India: It is a widely acknowledged fact that cryptocurrency trading has increased dramatically in recent years.
People use digital assets such as NFT (non-fungible token) for using cryptocurrencies such as Ethereum, Bitcoin, Ripple, and so on. There is currently no law or legal structure in India that regulates cryptocurrency trading or transactions.
However, the Finance Act 2022 recently included a provision concerning the taxation of virtual digital assets in India. The term ‘virtual digital assets’ (‘VDA’) is broad and includes cryptocurrency and other blockchain-based assets.
Furthermore, the provision allows the government to add any other digital asset to the VDA list or exclude/exempt certain assets that fall under the proposed definition.
Besides, the Indian government intends to launch central bank digital currency as a long-term replacement for paper currency.
The term “non-fungible token”, added to the definition of VDA
The proposed amendment adds Section 115-BBH to the Income-tax Act to deal with VDA taxation. This demonstrates the government’s clear intention to separate VDA taxation from other income taxation. The section states that a flat tax of 30%, plus a surcharge and cess, will be levied on VDA income.
In layman’s terms, a 30% tax applies on all gains from the sale, transfer, gift, or relinquishment of assets, as well as the extinguishment of any rights therein.
Asset ownership holds no tax, and tax provisions will trigger only when the asset transfers from one person to another. Except for the cost of acquisition, the owner of the VDA will not be able to claim any exemptions or deductions from his or her income.
The provision will take effect on April 1, 2022, and will be retroactive. However, no understanding or clarification of the taxability of crypto assets has been provided until March 31, 2022. This causes concern among crypto asset holders, so people urgently require clarification.