digital assets | Crypto tax: What are ‘virtual digital assets’ that will be taxed at 30% now?
The government has also proposed a 1 per cent tax deducted at source (TDS) in order to track the transactions. Many see this as a masterstroke that will help the government track every transaction as market players will be liable to deduct taxes and report the transaction to the government.
The clarification on the taxation of cryptocurrency was a long pending demand from the industry.
The government also proposed to introduce Digital Rupee, using blockchain and other technologies, to be issued by the Reserve Bank of India starting 2022-23. “Digital currency will also lead to a more efficient and cheaper currency management system,” Finance Minister Nirmala Sitharaman said.
Analysts and industry also welcomed these steps.
Pranay Bhatia, Partner and Leader – Tax and Regulatory Services, BDO India said: With no deduction for cost, tax rate at 30 per cent, tax on mining/gifting and no offset of loss against income from other sources, the FM has announced the much-needed clarity on crypto transactions. He, however, added that tracking such transactions in the absence of a central regulator may be challenging.
So what are these virtual digital assets, as far as taxation is concerned?
In simple words, it basically means cryptocurrencies, DeFi (decentralised finance) and non-fungible tokens (NFTs). Prima facie, this excludes digital gold, central bank digital currency (CBDC) or any other traditional digital assets, and hence aimed at specifically taxing cryptocurrencies.
In the Finance Bill tabled in the Parliament, the government defines virtual digital assets as:
- 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;
- a non-fungible token or any other token of similar nature, by whatever name called;
- any other digital asset, as the Central Government may, by notification in the Official Gazette specify.
