The Finance Minister of India presented Budget 2022 on 01 February 2022. With respect to Cryptocurrency, this is the first time that Tax department has elaborated its focus and clarity on taxing the digital assets.
Digital Assets and Virtual Currency has now been covered within the tax ambit and has now been defined in the Income Tax act, 1961.
According to the Finance Bill, a virtual digital asset is 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.
The Budget 2022-23 has further proposed one per cent TDS on payments towards virtual currencies beyond Rs 10,000 in a year and taxation of such gifts in the hands of the recipient. The threshold limit for TDS would be INR 50,000 a year for specified persons, which include individuals/HUFs who are required to get their accounts audited under the I-T Act.
It is extremely clear that the said tax has been imposed to track all virtual currency transactions, whether fiat to crypto or crypto to crypto or other permutations and combinations which may be possible.
There was earlier speculation about classification of Cryptocurrency into capital asset or inventory on business sales. This has now been clarified, and taxation implication shall accordingly arise at the rate of thirty percent on such gains.
Finance Bill 2022 has proposed to tax any income from transfer of any virtual digital asset at a rate of 30 per cent. Deductions and exemptions shall be restricted to cost of acquisition of such assets only.
It is pertinent to understand that cost has to be clearly identifiable, as this itself would become a matter of complexity where the same has been acquired through various sources included fiat or other forms of crypto currencies.
Having said the above, it is also interesting to note that legality of trading in cryptocurrency is still a matter under consideration by RBI and other authorities and that aspect has to be separately dealt with even while obliging with proper tax compliance.
Direct Tax Team
AnBac Advisors