Scheme for taxation of virtual digital assets (2024)

There has been a phenomenal increase in transactions in virtual digital assets. The magnitude and frequency of these transactions have made it imperative to provide for a specific tax regime. Accordingly, for the taxation of virtual digital assets, the Government has introduced a Section 115BBH under the Income Tax Act, 1961, which provides that any income from transfer of any virtual digital asset shall be taxed at the rate of 30%.

• No deduction in respect of any expenditure or allowance shall be allowed while computing such income except the cost of acquisition. Further, loss from the transfer of virtual digital assets cannot be set off against any other income.
• Further, in order to capture the transaction details, the Government has also introduced a Section 194S under the Income Tax Act, 1961 which provides for TDS on payment made in relation to transfer of virtual digital assets at the rate of 1% of such consideration above a monetary threshold.
• The gift of virtual digital assets is also proposed to be taxed in the hands of the recipient.

Section 115BBH:- Chargeability of income on transfer of Virtual digital assets

(1). Where the total income of an assessee includes any income from the transfer of any virtual digital asset, the income-tax payable shall be the aggregate of––

(a) the amount of income-tax calculated on the income from transfer of such virtual digital asset at the rate of 30%.; and

(b) the amount of income-tax with which the assessee would have been chargeable had the total income of the assessee been reduced by the income referred to in clause (a).

(2). Notwithstanding anything contained in any other provision of this Act,–

(a) no deduction in respect of any expenditure (other than cost of acquisition) or allowance or set off of any loss shall be allowed to the assessee under any provision of this Act in computing the income referred to in clause (a) of sub-section (1); and

(b) no set off of loss from transfer of the virtual digital asset computed under clause (a) of sub-section (1) shall be allowed against income computed under any other provision of this Act to the assessee and such loss shall not be allowed to be carried forward to succeeding assessment years.

Meaning of Virtual digital assets: – Section 2(47A)

“virtual digital asset” means––

(a) 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;

(b) a non-fungible token or any other token of similar nature, by whatever name called;

(c) any other digital asset, as the Central Government may, by notification in the Official Gazette specify: Provided that the Central Government may, by notification in the Official Gazette, exclude any digital asset from the definition of virtual digital asset subject to such conditions as may be specified therein.

Explanation.–For the purposes of this clause,––

(a) “non-fungible token” means such digital asset as the Central Government may, by notification in the Official Gazette, specify;

(b) the expressions “currency”, “foreign currency” and “Indian currency” shall have the 21 same meanings as respectively assigned to them in clauses (h), (m) and (q) of section 2 of the Foreign Exchange Management Act, 1999.

Introduction of Section 194S for the purpose of traces those transactions for which payment made in relation to transfer of virtual digital asset

Section 194S:- TDS on payment made in relation to transfer of virtual digital asset.

(1). Any person responsible for paying to a resident any sum by way of consideration for transfer of a virtual digital asset, 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 equal to 1 % of such sum as income-tax thereon:

Provided that in a case where the consideration for transfer of virtual digital asset is–

(a) wholly in kind or in exchange of another virtual digital asset, where there is no part in cash; or

(b) partly in cash and partly in kind but the part in cash is not sufficient to meet the liability of deduction of tax in respect of whole of such transfer, the person responsible for paying such consideration shall, before releasing the consideration, ensure that tax has been paid in respect of such consideration for the transfer of virtual digital asset.

(2). The provisions of sections 203A and 206AB shall not apply to a specified person.

(3). Notwithstanding anything contained in sub-section (1), no tax shall be deducted in a case, where––

(a) the consideration is payable by a specified person and the value or aggregate value of such consideration does not exceed fifty thousand rupees during the financial year; or

(b) the consideration is payable by any person other than a specified person and the value or aggregate value of such consideration does not exceed ten thousand rupees during the financial year.

(4) Notwithstanding anything contained in this Chapter, a transaction in respect of which tax has been deducted under sub-section (1) shall not be liable to deduction or collection of tax at source under any other provisions of this Chapter.

(5) Where any sum referred to in sub-section (1) is credited to any account, whether called “Suspense Account” or by any other name, in the books of account of the person liable to pay such sum, such credit of the sum shall be deemed to be the credit of such sum to the account of the payee and the provisions of this section shall apply accordingly.

(7). If any difficulty arises in giving effect to the provisions of this section, the Board may, with the prior approval of the Central Government, issue guidelines for the purposes of removing the difficulty.

(8). Every guideline issued by the Board under sub-section (6) shall be laid before each House of Parliament and shall be binding on the income-tax authorities and on the person responsible for paying the consideration on transfer of such virtual digital asset.

(9). Notwithstanding anything contained in section 194-O, in case of a transaction to which the provisions of the said section are also applicable along with the provisions of this section, then, tax shall be deducted under sub-section (1).

Explanation.–

For the purposes of this section “specified person” means a person,–

(a) being an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business carried on by him or profession exercised by him does not exceed one crore rupees in case of business or fifty lakh rupees in case of the profession, during the financial year immediately preceding the financial year in which such virtual digital asset is transferred;

(b) being an individual or a Hindu undivided family, not having any income under the head “Profits and gains of business or profession”

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