The law on taxation of Virtual Digital Assets (VDAs) under the Income-tax Act, 1961 has been ushered in by the Finance Act, 2022. Briefly, the law provides for the following:
(i) The levy of a 30% tax on income from transfer of VDAs in the hands of the transferor;
(ii) receipt of VDAs for nil or inadequate consideration is taxable in the hands of the recipient; and
(iii) Persons responsible for paying any consideration to Indian residents for transfer of VDAs are obliged under Section 194S of the Act to deduct tax at source (TDS) at 1% with effect from 1 July 2022.
The Act defines Virtual Digital Assets (VDAs) as folows:
(i) any information or code or number or token (not being Indian currency or foreign 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; (ii) notified non-fungible tokens (NFTs); (iii) any other digital asset as maybe notified by the Central Government.
The Central Government is entitled to issue a notification to exclude any digital assets from the definition of VDA.
The Central Government has issued two notifications bearing numbers 74 and 75 of 2022, both dated 30 June 2022 to clarify whether digital gift cards, loyalty points, etc would be covered in the scope of VDAs. The two Notifications read as follows:
MINISTRY OF FINANCE
(Department of Revenue)
(CENTRAL BOARD OF DIRECT TAXES)
NOTIFICATION
New Delhi, the 30th June, 2022
(Income-tax)S.O. 2958(E).––In exercise of the powers conferred by proviso to clause (47A) of section 2 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby notifies following virtual digital assets which shall be excluded from the definition of virtual digital asset:
(i) Gift card or vouchers, being a record that may be used to obtain goods or services or a discount on goods or services;(ii) Mileage points, reward points or loyalty card, being a record given without direct monetary consideration under an award, reward, benefit, loyalty, incentive, rebate or promotional program that may be used or redeemed only to obtain goods or services or a discount on goods or services;
(iii) Subscription to websites or platforms or application.
2. This notification shall come into force from the date of publication in the Official Gazette.
[Notification No. 74/2022/F. No. 370142/29/2022-TPL (Part-I)]
ANKIT JAIN, Under Secy.
MINISTRY OF FINANCE
(Department of Revenue)
(CENTRAL BOARD OF DIRECT TAXES)
NOTIFICATION
New Delhi, the 30th June, 2022
(Income-tax)S.O. 2959(E).––In exercise of the powers conferred by clause (a) of Explanation to clause (47A) of section 2 of the Income-tax Act, 1961 (43 of 1961) (hereinafter referred as ‘the Act’), the Central Government hereby specifies a token which qualifies to be a virtual digital asset as non-fungible token within the meaning of sub-clause (a) of clause (47A) of section 2 of the Act but shall not include a nonfungible token whose transfer results in transfer of ownership of underlying tangible asset and the transfer of ownership of such underlying tangible asset is legally enforceable.
2. This notification shall come into force from the date of publication in the Official Gazette.
[Notification No. 75/2022/F. No. 370142/29/2022-TPL (Part-I)]
ANKIT JAIN, Under Secy.
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This article is a mere general guide to the subject matter. It is not professional advice. Please consult a professional for advice on the specific circumstances of your case.