Search Your Queries Related To Trilegal

Update

Budget 2022: New Scheme for Taxation of Virtual Digital Assets

28 Feb 2022

Cube Highway Image
Government proposes to tax virtual digital assets such as cryptocurrencies and non-fungible tokens in India as it gears up for the introduction of an official digital currency.

The Budget 2022 marks an important milestone for the blockchain ecosystem in India with the Finance Minister announcing the launch of India’s official digital currency (digital rupee) which will be issued by the Reserve Bank of India starting 2022-23. Considering the phenomenal increase in the volume of the transactions in the virtual digital assets (VDAs) space, the Finance Bill, 2022 (Bill) proposes a new and separate scheme for taxation of VDAs (although the legality of the same is still unclear). The key highlights of this development are discussed below.

Definition of ‘virtual digital asset’

The Bill proposes to define VDAs to mean, (i) any information, code, number, or token (not being an Indian or a foreign currency) which is generated through cryptographic means or otherwise and which can be transferred, stored, or traded electronically, (ii) non-fungible tokens; or (iii) other to be notified digital assets. The definition seems to have been kept broad to cover new assets emerging in this space and is proposed to come into effect from 1 April 2022.

Computation of income arising from the transfer of VDAs and tax rate

The Bill proposes to tax the income arising to any taxpayer from the transfer of any virtual digital asset at a flat rate of 30% (plus applicable surcharge and health and education cess). While computing the income arising from such transfer, no deduction for any expenditure or loss will be allowed to the taxpayer except the cost incurred in acquiring the VDAs. Further, the taxpayer will not be entitled to set-off or carry forward any loss arising on transfer of VDAs.

The amendment, proposed to be effective from 1 April 2022, is likely to bring much needed clarity regarding the taxability of VDAs going forward. However, since the provisions are proposed to be applicable prospectively, several questions may remain unanswered regarding the tax positions adopted by the taxpayers in the preceding years.

Gift of VDAs made taxable in the hands of recipient

The Bill proposes to make the receipt of VDAs as a gift (i.e. for nil or inadequate consideration) taxable in the hands of the recipient taxpayer as income from other sources, with effect from 1 April 2022. However, the Bill does not provide any guidance on the valuation norms for computing such income in the hands of recipient.

Download PDF to read more

Subscribe to our Knowledge Repository

If you would like to receive content directly in your inbox from our knowledge repository, please complete this subscription form. This service is reserved for clients and eligible contacts.







    Disclaimer

    Under the rules of the Bar Council of India, Trilegal is prohibited from soliciting work or advertising in any form or manner. By accessing this website, www.trilegal.com, you acknowledge that:

    • You are seeking information about Trilegal of your own accord and there has been no form of solicitation, advertisement or inducement by Trilegal or its members.
    • This website should not be construed as providing legal advice for any purpose.
    • All information, content, and materials available on this website are for general informational purposes only.
    • Any information obtained or material downloaded from this website is completely at the user’s volition, and any transmission, receipt or use of this website is not intended to, and will not, create any lawyer-client relationship.
    • Information on this website may not constitute the most up-to-date legal or other information. Trilegal is not liable for the consequences of any action taken by any person based on any material or information available on this website, or for any inaccuracy in or exclusion of any information or interpretation thereof.
    • Readers of this website or recipients of content or information available on this website should not act based on any or all such content or information, and should always seek advice of competent legal counsel licensed to practice in the appropriate jurisdiction.
    • Third party links contained on this website re-directing users to such third-party websites should neither be construed as legal reference / legal advice, nor considered as referrals to, endorsements of, or affiliations with, any such third party website operators.
    • The communication platform provided on this website should not be used for exchange of any confidential, business or politically sensitive information.
    • The contents of this website are the intellectual property of Trilegal.

    We prioritize your privacy. Before proceeding, we encourage you to read our privacy policy, which outlines the below, and terms of use to understand how we handle your data:

    • The types of information we collect and why we collect them.
    • How we use your information to provide a personalized experience.
    • The measures we take to ensure the security of your data.
    • Your rights and choices in managing your personal information.
    • How we may share information with trusted partners for specific purpose.

    For more information, please read our terms of use and our privacy policy.

    Up arrow