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Opinion

A balancing move

Government’s decision to tax virtual digital assets has watered down the arguments supporting the validation of digital currencies; writes Rajarshi Dasgupta

A balancing move
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The Central Government appears to have acknowledged that virtual digital assets have gained tremendous popularity in recent times and the volumes of trading in such digital assets has increased substantially. It also is watching the emergence of a market where payment for the transfer of a virtual digital asset can be made through another such asset. Recognising the potential of digital assets to turn into a cash cow, the Government has come up with a new scheme providing for the taxation of such virtual digital assets at 30 per cent. Moreover, a TDS at 1 per cent will be levied where the sale consideration exceeds a specified threshold. Such a development may carry a bitter-sweet after-taste for those seeking validation of digital currencies. And what may become a bone of contention for litigants, no deduction will be allowed in respect of any expenditure (other than the cost of acquisition) or allowance or set-off of any loss shall be allowed to the assessee under any provision of the Act while computing income from transfer of such asset.

The proposed section 115BBH seeks to provide that where the total income of an assessee includes any income from transfer of any virtual digital asset, the income tax payable shall be the aggregate of the amount of income-tax calculated on the income of transfer of any virtual digital asset at the rate of 30 per cent and the amount of income-tax with which the assessee would have been chargeable had the total income of the assessee been reduced by the aggregate of the income from transfer of virtual digital asset. Further, no set-off of any loss arising from transfer of virtual digital assets shall be allowed against any income computed under any other provision of the Act and such loss shall not be allowed to be carried forward to subsequent assessment years. This amendment will take effect from April 1, 2023, and will accordingly apply in relation to the assessment year 2023-24 and subsequent assessment years.

Further, in order to widen the tax base from the transactions so carried out in relation to these assets, it is proposed to insert section 194S to the Act to provide for deduction of tax on payment for the transfer of virtual digital assets to a resident at the rate of one per cent of such sum. However, in case the payment for such transfer is:

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

(ii) 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 the whole of such transfer, the person before making the payment shall ensure that the tax has been paid in respect of such consideration.

However, in the case of specified persons, the provisions of section 203A and 206AB will not be applicable. Further, no tax is to be deducted in case the payer is the specified person and the value or the aggregate of such value of consideration to a resident is less than Rs 50,000 during the financial year. In any other case, the said limit is proposed to be Rs 10,000 during the financial year. It is also proposed to provide that if tax has been deducted under section 194S, then no tax is to be collected or deducted in respect of the said transaction under any other provision of Chapter XVII of the Act. It is proposed to empower the Board to issue guidelines, with the prior approval of the Central Government, to remove any difficulty arising in giving effect to the provisions of the said section and every such guideline issued by the Board 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 assets. This amendment will take effect from July 1, 2022.

The writer is Executive Director and Head of Taxes, AQUILAW. Views expressed are personal

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