Budget 2022: Cryptocurrencies come under the Direct tax axe

FM Sitharaman announced a new digital currency powered by blockchain technology to be issued by RBI in 2023. The proposal is in line with the government’s intention to have a digital fiat currency.

FM Sitharaman announced a new digital currency powered by blockchain technology to be issued by RBI in 2023. The proposal is in line with the government’s intention to have a digital fiat currency.  

Meanwhile, a scheme for the taxation of virtual digital assets was proposed by the FM in her Budget presentation.   

A virtual digital asset is proposed to mean any information, code, number, or token (not being Indian currency or any foreign currency), generated through cryptographic means or otherwise, by whatever name called, providing a digital representation of value.  

Digital currencies like Bitcoin, Ethereum, and a few more have gained significant popularity globally; however, they have largely been volatile and away from being considered an asset class by many governments, including India.  

In an attempt to dissuade transactions in virtual digital assets, any income from the transfer of such assets will be taxed at 30 per cent. Further, no deduction on account of expense incurred nor any set-off of loss is allowed to be reduced from the gain arising from the transfer.  

The move is largely construed as legitimising transactions in cryptocurrencies and NFT (non-fungible tokens) even though that means harsher tax provisions.  

With an intention to capture the transaction details in its database, TDS at the rate of 1 per cent on payment has been made in relation to the transfer of virtual digital assets above a monetary threshold. The gifting of virtual digital assets has also been proposed to be taxed in the hands of the recipient.  

These provisions for the taxation of virtual digital assets will take effect from April 1, 2023, and apply to AY 2023-24 as well as in the subsequent years.