Crypto currencies have been the subject of talk over the past few years and more so with the wild price fluctuations at regular intervals. It is neither illegal nor declared as legal by Indian Government. Investors were confused on the taxation of gains or losses on trading in crypto currencies and waited for long for clarifications from the government. In the Budget,2022, the Government has finally brought in new clause 47A to sec.2 of Income Tax Act defining the Virtual Digital Asset (VDA) and Sec.115BBH covering the taxation part on transfer of VDA.
What is VDA?
The term virtual digital asset is defined under section 2(47A) of the Act to include the following:
- Any information or code or number or token (not being Indian currency or foreign currency) which meets certain conditions
- Non-fungible token (NFT) or any other token of similar nature, by whatever name called
- Any other digital asset, as the government may specify by notification
The government also may exclude any asset from the definition of virtual digital asset by notification.
Taxation of VDA:
A new section 115BBH has been introduced in the Income Tax Act w.e.f. F.Y 2022-23 which talks about taxation of gains on transfer of VDA.
All gains arising from transfer of VDA shall be taxed at flat rate of 30%. No deduction shall be allowed for any expenditure or allowance while calculating the income from transfer of VDA. Only the cost of acquisition of VDA is allowed to arrive at gains. Expenses shall commission, bank fee, brokerage etc shall not be allowed.
Allowability of Losses on transfer of VDA:
Similarly, losses against one type of VDA shall not be allowed to be set off against gains from another type of VDA. For example, if an investor makes loss of Rs.1,000 on transfer of Ethereum coin and gains of Rs.2,000 on transfer of bit coin then the loss on transfer of Ethereum cannot be set off against gains from transfer of bitcoin. Tax to be calculated on gains only. Also, the losses from transfer of VDA shall not be allowed to carried forward to future years.
Tax provisions are harsh and discourages investment in crypto currencies. Investor is expected to main profit /loss account for each type of crypto traded to ensure that taxes are calculated correctly. It appears that this move by the Government aims to dissuade trading/investments in crypto’s by introducing stringent provisions in the Income Tax law. There are still may grey areas in this crypto law which one can only expect to be clarified in the near future.