Laws Governing Virtual Digital Assets Tax and Recent RBI Updates

Virtual Digital Assets (VDAs) is the legal term denoted by the income tax law to cryptocurrencies, Non-Fungible Tokens, Crypto Coins etc. that were essentially based on blockchain technology. One of the significant drawbacks of these assets is that they are highly unregulated and volatile. The government has been issuing a constant advisory to investors to stay cautious while investing in these assets. Further, to track down the dealings in these assets, the government introduced certain provisions in the income tax law. Also, various guidelines were issued relating to the advertisement and promotions for these assets. Let’s check out the laws governing virtual digital assets in India!

Laws and Guidelines Governing Virtual Digital Assets

Following are the laws and guidelines governing virtual digital assets in India:

Income Tax Act, 1961

• Taxability: The Income Tax Act, 1961 laid down broad provisions in relation to the virtual digital assets tax. The Finance Act, 2022 introduced virtual digital asset tax @30% under section 115BBH on the income generated from the same. Further, no deduction shall be allowed in respect of any expenditure (except the cost of acquisition) or allowance. Also, no set-off of any loss shall be allowed against income from virtual digital assets. Also, the loss incurred due to the transfer of virtual digital assets cannot be set off against any other income nor it can be carried forward to succeeding years.

• TDS: The income tax law has further laid down provisions in relation to the deduction of TDS on virtual digital assets. As per Section 194S of the income tax act, any person paying any sum to a resident against the transfer of virtual digital assets shall deduct TDS @1% of such sum. The TDS shall be deducted at the time of credit or payment whichever is earlier. However, TDS shall not be deducted in case the consideration paid does not exceed Rs. 10,000 during the financial year. In the case of specified persons, the consideration shall not exceed Rs. 50,000 during the financial year.

Advertisement Guidelines

The government further issued advertisement guidelines for anyone who is advertising virtual digital assets through any medium. It requires the advertiser to include a disclaimer that states - “Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions.” This ensures that the investors are aware of the risks associated with crypto investments.

Crypto Bill and RBI’s Statement

The government was planning to introduce the “The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021” to regulate the crypto market in India. It was set to address the various issues surrounding the crypto market. However, it was under further consideration following which there have been no further updates. However, the RBI Governor stated that consistent warnings to people about the risks associated with crypto pushed people to avoid crypto investments. This saved a lot of investors from incurring losses due to the recent crypto crash. RBI is still holding its position that banning cryptocurrency is an ideal choice for India.

Following are the details regarding the various guidelines and laws governing virtual digital assets tax and the recent updates in the crypto world. In case of any queries, feel free to contact the ASC Group.