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Taxation of Virtual Digital Assets: A Guide

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Income from the transfer of any virtual digital asset is subject to income tax at a rate of 30%. Furthermore, the tax must be tds return filing online at the point of transfer of the digital asset. The term “virtual digital asset” has been defined by the addition of a new clause (47A) to Section 2 of the Finance Act. Keep reading the blog post to learn more.

What Exactly Is a Virtual Digital Asset?

(a) Any information, code, number, or token (that is not Indian currency or foreign currency), generated through cryptographic means or otherwise. Whatever name is call, that provides a digital representation of value exchange with or without consideration. Moreover, with the promise or representation of having inherent value, or functions as a store of value or a unit of account. This includes its use in any financial transaction or investment, but is not limit to investment schemes;

(b) Non-fungible Token (NFT) or any other token of a similar nature, regardless of name;

(c) Any other digital asset specified by the Central Government in the Official Gazette.”

Simply put, virtual digital currency refers to cryptocurrency, NFT, or another virtual digital currency as designated by the Central Government. Furthermore, like other currencies, these assets in the form of currency can use to purchase or obtain any goods or services.

Please keep in mind that these digital assets do not include subscriptions to any OTT platform, mobile applications, e-commerce platforms, and so on.

Virtual Digital Asset Classification

The Indian government has yet to clarify whether the virtual digital currency will be a currency, commodity, or security. The virtual digital asset should be classified as a deemed capital asset in the absence of such clarification.

Section 2(14) of the Income-tax Act defines a capital asset.

A capital asset, according to this section, is any property hold by a person. Whether or not it relate to his business or profession. The term “property” has no legal definition. But it refers to any possible interest that a person can acquire, hold, or enjoy.

As a result, cryptocurrencies or NFTs should consider capital assets if purchased for investment purposes by taxpayers. As a result, any gain resulting from the transfer of such assets will be taxable as capital gains.

Virtual digital currency income can be classified as “income from business or profession” or “income from other sources.” If the taxpayer’s transactions in such assets are substantial and frequent. It should assume that he is trading in such assets.

Income from the sale of such assets should be taxable as business income in this case. If, on the other hand, the virtual digital currency is hold for non-trading purposes. It will consider income from other sources. Losses are set off and carried forward.

Final Thoughts

To wrap up, there shall be no set-off of loss from the transfer of virtual digital currency computed from income tax filing service providers against income computed to the assessee under any other provision of this Act, and such loss shall not be allowed to be carried forward to succeeding assessment years.

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