As the government prepares to introduce a finance law regulating all virtual digital assets, including cryptocurrencies, it is developing questions and answers about taxing them. This FAQ sheet aims to provide users with an explanation in a precise manner about the applicability of Income Tax and Goods and Services Tax to virtual digital assetssaid a report recently.
Quoting an official with knowledge of the matter, PTI news agency said the Frequently Asked Questions (FAQ), which is being drafted by the Department of Economic Affairs (DEA), the RBI and the Revenue Department, will also be scrutinized by the Ministry of Law. It’s as he says. faq on Taxation of cryptocurrency Virtual digital assets are running. Although the FAQ is for informational purposes and has no legal sanctity, the opinion of the Ministry of Law is sought to ensure that there is no loophole.
The three divisions – RBI, DEA and Revenue Department – prepare these FAQs to ensure that there is complete clarity on the tax aspect mentioned in the invoice. This applies to both field tax offices as well as those who deal with cryptocurrencies and other virtual digital assets.
This year’s budget focused on introducing the new Finance Bill, which gives a long-awaited perspective on income tax on crypto or virtual digital assets. According to the provisions of the law, from April 1 this year, a 30 percent income tax plus additional tax and fees will be imposed on transactions involving virtual digital assets. This would be done in the same way that the tax code treats winnings from horse races or other speculative transactions.
The 2022-23 budget also proposed a 1 percent withholding tax (taxes withheld at source) on payments for virtual currency above Rs 10,000 per year and taxation of such gifts in the hands of the recipient. The maximum TDS will be Rs 50,000 per annum for specified persons, which includes individuals/HUFs who are required to audit their accounts under the Information Technology Act. The provisions relating to 1 percent of the total added tax will come into effect from July 1, 2022, while gains will be taxed from April 1.
From a GST perspective, the FAQ is likely to provide clarification as to whether cryptocurrency is a good or a service. Currently, only 18 percent Goods and Services Tax (GST) is levied on the service provided by cryptocurrency exchanges and it is classified as financial services. The Goods and Services Tax (GST) Act does not clearly mention the classification of cryptocurrency. In the absence of a law regulating such virtual digital currencies, the classification must take into account whether the legal framework classifies it as an “enforceable claim.”
A justifiable claim is a claim that can be made by a creditor for any type of debt other than one secured by a mortgage of immovable property. Separately, the government is working on legislation to regulate cryptocurrencies, but no draft has been released publicly yet.
(with PTI input)