What are they? Check if you own One!
It is any information, code, number, or token generated through cryptographic or other methods.
- It represents value digitally.
- It can be exchanged based on its perceived value, with or without payment.
- It may act as:
- A store of value(something you hold that has worth).
- A unit of account(something you use to measure value).
- It can be transferred, stored, or traded electronically.
So the point is that VDAs are not only Cryptos but more than that! Let’s head to examples to get a glimpse of what is inclusive
Examples: Domain Names Collectables, Music Entertainment, Gaming and virtual, Digital Art, Non-Fungible Tokens, etc.
Is there something we should know about Non-Fungible Tokens?? You got the attention!
Yes! There is a catch go ahead with me!
Can we Use it in financial transactions? (Trust me, We are using it!)
Yes, for financial transactions or investments, like investments in schemes
What is not VDA? Here Comes the catch!
- Indian or any Foreign currency.
- Gift cards, vouchers, mileage points, reward points, loyalty points, and subscriptions to websites, platforms, or applications.
- A Non-Fungible tokenwhose transfer results in the transfer of ownership of underlying tangible asset and the transfer of ownership of such underlying tangible asset is legally enforceable.
Are, VDAs Regulated? Safety First, but Protection is a Worthy Sheild!
Yes, and not just one, but the following acts and regulators are watching transactions of all kinds done in VDAs:
- RBI:Reserve Bank of India
- RoC:Registrar of Companies (Ministry of Corporate Affairs)
- IT: Income Tax Act, 1961
- SEBI:Securities Exchange Board of India
- ASCI: The Advertising Standards Council of India
- PMLA:Prevention of Money Laundering Act, 2002 (Since 07-03-2023).
- FEMA:Foreign Exchange Management Act, 1999
Let us come to the part in which the header Commits! Taxation
Are VDAs Taxable? Yes, they are very much taxable, post 07-03-2023, they were taxable under general provisions of the act, i.e. as per slab rates, etc. Post that CBDT has turned the tables and the following provisions are applicable:
Current Tax rate: 30% Flat
- Only Cost of AcquisitionAllowed as a Deduction
- No Carry forward of Loss Allowed
- No Set-off Allowed, neither Intra Head (Gain-loss from other VDAs) nor inter Head (From Other Sources of Income)
This is more attributable to market usage of VDAs for speculations, Ponzi schemes, and other illegitimate uses.
It's interesting to note that VDAs are not illegal but they are being used for illegal activities.
What if I pass on VDA as a gift?
Gifting will attract tax in the hands of the receiver. Will be taxed on a similar concept of “Other than immovable Property” under the head “Other Sources” (w.e.f. 30-06-2022), which says:
If received from relatives = Nil
If not, and value Above Rs. 50,000/- = 30%
Value to be defined keeping in mind its fair market value.
TDS & VDA
U/s 194S @ 1%
Simply stating: Deductor – Any Person
Deductee - Only Resident
What about Cryptos …Cryptocurrencies?
They are not legal Tenders in India and many other countries, but any transaction done in them attracts taxes in the same manner, it applies to any VDA i.e. @30%
PS: Taxation alone does not make an activity a legal venture. The concepts of taxation and legality are often intertwined, but they are fundamentally different
PMLA and VDA
If you are manufacturing, selling, or in layman’s terms, making VDAs your business, it is mandatory to comply with PMLA Guidelines.
One of the major requirements is to register oneself with the Financial Intelligence Unit - India
Violation of PMLA leads to rigorous imprisonment for a term which shall not be less than three years but which may extend to ten years and shall also be liable to fine.
If you are the proud owner of NFTs, Digital Tokens, Digital Art, domains, virtual collectibles, etc. Or you often transact, invest in cryptocurrencies, like bit coins, etc. and have dreamed of earning from them, then gear up for Income Tax Provisions. Also, like not all that glitters is gold, similarly not everything earned or useable digitally is VDAs. Also, everything you are paying taxes on is not legal! VDAs are taxed @ 30%, with no deductions except for acquiring payments made and losses…we don’t believe in them, do we?
