The proposal to tax cryptocurrency shows that the government wants to curb the enticement towards crypto-assets. High tax, no deduction, no set-off are the signs. Calling it a great move by the government is lying to oneself. Attached summary for your judgment.
INCOME TAX ON VIRTUAL DIGITAL ASSETS
- The proposal is to insert section 115BBH under Income Tax Act to levy tax on income from virtual digital assets (‘VDA’). This proposed amendment will take effect from 1st April, 2023 and will, accordingly, apply in relation to the assessment year 2023 – 2024 and subsequent assessment years. This means the financial year will be 2022 – 23. So, all transfers on and after 1st April, 2022 will be under the ambit of the new proposed provision.
- Section 115BBH(1)(a) – Slab rate will not be applicable for VDA and it will be taxed at 30%
- Section 115BBH(1)(b) – Other Income is INR 10 lakhs and Income from transfer of VDA is INR 5 lakhs then INR 10 lakhs will be as per slab rate/flat rate and INR 5 lakhs will be separately taxed at 30%.
- The proposed section 2(47A) defines virtual digital assets and it includes Cryptocurrency and NFT.
COST OF ACQUISITION AND DEDUCTION: HOW IT WILL WORK
- Section 115BBH(2)(a) – Only Cost of Acquisition will be reduced while computing income from transfer of VDA
For instance: Bitcoin worth INR 5 Lakhs were bought and then the same was transferred for INR 10 Lakhs. CoA – INR 5 Lakhs
Taxable Income = INR 10 Lakhs – INR 5 Lakhs (CoA) = INR 5 Lakhs
Tax Payable = 30% of INR 5 lakhs = INR 1.5 Lakhs - Section 115BBH(2)(a) – No deduction in respect of any expenditure or allowance or set off of any loss shall be allowed – this means the benefit of provisions allowing such deduction under the Income Tax Act will not be available for income from transfer of VDA.
NO SET-OFF OF LOSS
- Section 115BBH(2)(a) – Set off loss means while transferring VDA at loss, the loss will not be allowed to be set-off against the income other than income from transfer of VDA. For instance, Bitcoin worth INR 10 lakhs were bought and were transferred at INR 5 Lakhs, the loss accrued is INR 5 lakhs. Other Income is INR 7 lakhs then the loss of INR 5 Lakhs will not be set-off against INR 7 lakhs. Income Tax has to be paid on INR 7 Lakhs as per slab rate/flat rate. Even such loss of INR 5 Lakhs cannot be carried forward to the next assessment year.
GIFTING IS ALSO TAXED
- It is proposed to amend the Explanation to clause x of section 56(2) to include the definition of the expression “property” to have the same meaning as assigned to it in clause (d) of the Explanation to clause (vii) and shall include virtual digital asset.
- Recipient based taxation – At the hands of the recipient.
Disclaimer: The views expressed by the author is personal and academic in nature. Kindly, do not act or refrain from acting based upon the write-up without seeking professional legal advice. The author may be reached at abhishek@gstivy.in