FinMin proposes reforms to strengthen digital currency taxation standards

According to the revisions to the Finance Bill, 2022 that have been circulated among Lok Sabha members, the ministry intends to delete the term ‘other’ from the provision dealing with the set-off of losses from gains in virtual digital assets.

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The government proposed on Thursday to tighten the rules governing cryptocurrency taxes by prohibiting losses from cryptocurrencies from being offset against profits from other virtual digital assets.

According to the revisions to the Finance Bill, 2022 that have been circulated among Lok Sabha members, the ministry intends to delete the term ‘other’ from the provision dealing with the set-off of losses from gains in virtual digital assets.

This means that losses incurred as a result of the transfer of virtual digital assets (VDA) will not be permitted to be offset against revenue derived from the transfer of another VDA. A VDA, according to the Finance Bill 2022, might be a code, number, or token that can be transmitted, stored, or exchanged electronically.

The VDAs will comprise popular cryptocurrencies as well as non-fungible tokens (NFTs), which have been popular in recent years. The levy of income tax on crypto assets has been clarified in the 2022-23 Budget. From April 1, such transactions will be subject to a 30% I-T plus cess and surcharges, in the same way as horse racing wins or other speculative transactions are.

In addition, no deduction for any expenditure (other than the cost of purchase) or allowance will be permitted when calculating the revenue from the transfer of VDA.

The Budget 2022-23 also suggested a 1% TDS on payments towards virtual currencies exceeding Rs 10,000 per year, as well as taxes of such presents in the hands of the receiver. The TDS threshold limit would be Rs 50,000 per year for certain persons, which would include individuals/HUFs who are required to have their accounts audited under the I-T Act.

The regulations relating to 1% TDS will go into effect on July 1, 2022, whereas the gains will be taxed on April 1. Separately, the government is drafting legislation to control cryptocurrencies, although no draught has been made public. The Finance Bill modifications also propose to weaken the penalty clause pertaining to the publishing of export-import statistics.

The Finance Bill recommended adding a new Section 135AA to the Customs Act, which stated that “if a person publishes any information relating to the value or classification or quantity of goods entered for export from India, or import into India, or the details of the exporter or importer of such goods under this Act unless required so to do under any law for the time being in force, he shall be punishable with imprisonment for a term which may extend to six months, or with fine which may extend to fifty thousand rupees, or with both.”

The reforms seek to eliminate the six-month jail sentence and the Rs 50,000 fine.

“If a person publishes any information, that is furnished to Customs by an exporter or importer under this Act, relating to the value or classification or quantity of goods entered for export from India, or import into India, along with the identity of the persons involved or in a manner that leads to disclosure of such identity unless required so to do under any law for the time being in force, or by specific authorization of such exporter or importer, he shall be punishable with imprisonment,” the amendment now reads.

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