Virtual Digital Asset

Virtual Digital Asset might be sounding very unfamiliar to many of the readers. I will try to explain it in easy terms. It is nothing but what we all commonly refer to as Cryptocurrency, Crypto Tokens, Non-Fungible Token (NFT) etc. I am sure many of us must have either held them as an investment or traded in them. So, now wherever I write “Virtual Digital Asset,” just consider the above 3 terms. I will be using the abbreviation VDA after this in the whole blog.

People have been earning a lot of money through VDA’s, so it was obvious that one day or the other it had to be brought under the scope of Income Tax and that is exactly what happened.

Recently, in the Union Budget, 2022, our Finance Minister Mrs. Nirmala Sitharaman introduced a 30% flat rate of tax and various other provisions on the income derived from VDA’s.

Now, first let us understand, what all has been included under the scope of a VDA through our Union Budget (Section 47A) –

• Any information or code or number or token (not being Indian 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

Tax on Transfer of VDA (Section 115BBH)

Income on transfer (sale) of VDA shall be chargeable to tax @ 30%.

No set-off of loss on transfer of VDA shall be allowed against any other head of income computed under the Income Tax Act, 1961 and such loss shall not be allowed to be carried forward to succeeding assessment years.

Payment on Transfer of VDA (Section 194S)

Any person who pays a resident any sum as consideration for transfer of a VDA, shall at the time of credit of such sum to the account of the resident or at the time of payment of such sum by any mode, whichever is earlier, deduct an amount @ 1% of such sum as income tax. So, this gives a gist of the provisions of income tax to be applied to a Virtual Digital Asset (VDA).