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Provisions relating to taxation were the first crypto specific laws introduced in India. Finance Act, 2022 has introduced a new provision in form of Section 2(47A) defining ‘virtual digital assets’ (VDA) in a broad and inclusive manner. A new tax has been levied through Section 115BBH of the Income tax which requires any income from transfer of any VDA to be offered to tax at 30%. However, taxing income from VDAs does not necessarily and explicitly legalize cryptocurrencies in India because Income tax is not concerned about the manner or means of acquiring the Income. An income earned from both - legal or illegal activities – can be taxed under Income Tax Act. Therefore, the legal status of cryptocurrencies in India can at best be characterised as “not illegal”.

In addition to prescribing the 30% tax liability, Section 115BBH provides that no deduction in respect of any expenditure, other than the cost of acquisition, allowance or set-off of loss will be allowed while computing the income from transfer of VDAs. Any loss from transfer of VDAs can neither be set-off nor be carried forward to any subsequent assessment years. This in essence isolates VDAs from other classes of asset and also increases effective tax rate on the income from transfer of VDAs.

The Finance Act also inserted Section 194S which requires any person buying VDA to deduct 1% TDS on the consideration being paid to the seller of the VDA. The Finance Ministry has also issued Circular Nos. 13 and 14 of 2022 providing guidelines to remove difficulties and clarify the operations of this Section. These Circulars explain the operation of this TDS liability in different situations including if the transaction is done on an exchange, through a broker or if the transaction is a VDA to INR or VDA to another VDA transaction.

Our taxations services include:

  • Advisory and opinion on taxation of VDAs in India
  • Tax planning and structuring
  • Project review and tax optimization
  • Tax filing and compliance
  • Project review and advisory related to NFT Taxation
  • TDS compliance
  • GST advisory
  • International taxation

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