Future Of Cryptocurrency in India

NFT in Finance Bill 2022

While the future of cryptocurrencies is unclear in India and many await the introduction of The Cryptocurrency and Regulation of Official Digital Currency Bill (“Crypto Bill”) with bated breath, certain changes introduced to the Income Tax Act, 1962 (“IT Act”) for these assets have brought some clarity on how they may be treated - especially from a tax angle. It's clear that Finance Bill 2022 has tax implications for those holders who have .

A new definition of “virtual digital assets” are being introduced to amend the IT act in 2022.

any information or code or number or token (not being Indian currency or foreign currency), generated through cryptographic means by any name called, providing a digital representation of value exchanged with or without consideration. With the promise to have inherent value, or functions as a store of value and a unit of account including its use in any financial transaction; and can be transferred, stored and traded electronically however is not limited to investment scheme.

the notion of the virtual tokens has been clarified in the amended Bill. More specifically, 'non-fungible token' (NFT) means any kind of digital asset which is customized for an individual user by design.

After this widespread definition, all types of cryptocurrencies seem to be included under the definition of “virtual digital assets.” This will give the central government enough wiggle-room to include or exclude any new form of cryptocurrency if it ever comes about.

The Finance Bill, which is to be presented before the Parliament for discussion and voting in the Budget Session beginning March 2, 2017, will include a few sections regarding cryptocurrency regulations. Finance minister Arun Jaitley said that the government is still studying how to deal with digital currencies. He also stated that:

An assessee’s income-tax payable will include the “aggregate of” two factors when it comes to virtual digital assets like crypto coins, which are bought and sold as a medium of exchange. First, the ‘income-tax on its net gain’ is calculated at thirty per cent (20 per cent if it is your first year). Second, an ‘amount of income-tax with which they would have been chargeable had their total sales been less than the gains realized from non-virtual digital assets’ is determined.

Notwithstanding anything contained in any other provision of this Act,–– (a) no deduction 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 the 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.

What Is The Implication Of Section 115BBH Regarding Taxation?

Here is what this means: Under this new code, the taxation does not apply to cryptocurrency transactions made for personal use. In other words, buying things with Bitcoin and other digital currencies will be tax-free. As in present times, if you transfer money from one bank account to another, the government will charge a flat service tax. In case of cryptocurrency transfers from one person to another, wallet-to-wallet transfers are exempted from any such taxes

It has been announced that gifting of “digital assets” will also incur tax in the hands of the recipient.

Additionally, a new Section 194S is proposed to be introduced with effect from 1 July 2022. This section (i) makes provisions for "1% TDS" to be deducted by the acquirer and deposited it with the tax authorities at the time of paying the consideration; (ii) provides that if any part of consideration cannot be paid or credited due to reasons beyond control then such amount shall not be deductible at source but may optionally be claimed as refund in a subsequent year.

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