The Government has finally introduced a much-awaited crypto tax regime where a blanket tax rate of 30% is applicable on the transfer of “virtual digital assets”. This move is not surprising given the Finance Minister’s response to queries raised in the Rajya Sabha in November 2021 regarding cryptocurrency and NFT regulations. The bill provides for the definition of a virtual digital asset that is wide enough to cover emerging digital assets including NFT, assets in the metaverse, digital currencies, tokens etc. The recognition of digital assets under income tax is not akin to granting legal status.
The bill specifies a rider that no deduction shall be allowed in respect of expenditure incurred on such virtual digital assets except the cost of acquisition. Additionally, no set-off and carry forward of losses from the transfer of virtual digital assets shall be allowed against any other income. The New crypto tax seems to be a deterrent to the interest of the investors and lot similar to taxation on gambling. With a view to monitor Crypto transactions, a TDS @ 1% shall be levied on the discharge of consideration at the time of transfer of virtual digital assets. The bill also provides for taxation on gifts of virtual digital assets in the hands of the recipient. This will have additional challenges in the operation of global crypto exchanges and privacy concerns for individuals.
The entire scheme appears to remove ambiguity and at the same time discourage people from investing in crypto assets. Further, the Finance Minister stated that a blockchain-based RBI backed digital currency (Central Bank Digital Currency (CBDC) - digital rupee) will be issued by RBI starting 2022-23 to encourage efficient and cheaper currency management system.
Picture Source :
