Section 115BBH a
newly inserted section in Finance Bill 2022 and applicable from 1st April 2022.
Any transfer of virtual digital assets on or after 1-4-2022 shall be taxable as
per Section 115BBH.
Speculation
in crypto currency is increasing day by day. One of such examples is Bitcoin,
which creates a major value in the digital market. Government in order to
reduce such transactions has imposed tax by introducing Section 115BBH.
Here
we have explained in detail about Section
115BBH - Tax on CryptoCurrency (Virtual Digital Assets Taxation scheme):
What is Section 115BBH of Income Tax Act 1961?
Section 115BBH is a
newly inserted section which provides information for taxation applicable on
virtual digital assets.
In
the budget 2022 government by introducing this section covers all the
transactions of virtual digital assets (crypto currency) under tax provisions.
Now 1st April 2022 onwards, transfer on virtual digital assets is taxable and
you have to pay tax.
What is a virtual digital asset?
As
per clause (47A) of section 2 of Income Tax Act virtual digital assets means:
- Any information or
- Code or
- Number or
- Token (not being Indian currency or any foreign currency)
And
that is generated through cryptographic means or otherwise. In this process it
creates a digital representation of value which is exchanged with or without
consideration, with the promise or representation of having inherited value, or
functions as a store of value or unit of account.
It
also includes Non-fungible token that means such digital assets which are
notified by the central government.
Virtual digital assets include crypto currencies and NFT’s (Non Fungible token). So the government put both these under the tax net.
Example
of crypto currency like Bitcoins (these also called fungible tokens)
Example
of Non fungible tokens, like digital
networks and real assets (real estate) or an art work
What is the
tax rate on the transfer of virtual digital assets under Section 115BBH?
As
per Section 115BBH if a person
(assessee) earns any income from transfer of any virtual digital asset then
such income is taxable at a flat rate of 30% and that Income is taxable under
the head capital gain.
So it is to be noted that both short term capital gain and long term capital gain is taxable at the same flat rate i.e. 30%. Thereafter surcharge and cess will be added.
Example
A
bitcoin of amount Rs. 10 lakhs purchased on 01-01-2022 and sell it for
01-05-2022 for amount Rs. 15 lakhs then it is short term capital gain and is
computed as for the below:-
|
Particulars |
Amount (Rs.) |
|
Full value of consideration (-) Cost of acquisition |
1500000 1000000 |
|
Short term capital gain |
500000 |
This
Rs.500000 is taxable under the head capital gain and same is taxable at 30%
rate
Tax
= Rs. 500000* 30%
= Rs. 150000
Point to be
noted:
TDS
will levied on transfer of virtual digital asset under section 194S at 1% of
rate (on certain conditions) (please refer article 194S)
If
a person received a virtual digital asset as a gift then it is taxable as per
the provisions of Section 56 (2) (x).
If
a person is trading in virtual digital assets like frequent transactions in
virtual digital assets then that Income is regarded as his business income and
not capital gain income, so this income is also taxed at 30% rate adding surcharge
(if any) and cess.
If
the period of holding of virtual digital assets is more than 36 months then it
is long term capital gain otherwise it is short term.
Are expenses
allowed to be deducted from sale value of cryptocurrency (virtual asset)?
Treatment of expenses:-
While
calculating the income from transfer of any virtual asset, no expense is
allowed to be deducted except cost of acquisition.
Like
in our earlier example if consideration received is Rs. 15 lakhs and cost of
acquisition is Rs. 10 lakhs then cost of acquisition is allowed to be reduced
from sale value (i.e. 15 lakhs) and tax will be calculated on 5 lakhs.
But
other than cost of acquisition or other expense is not allowed to be deducted
from sale value. So it is important to be noted that the following items you
should ignore (not deducted) while calculating income from transfer of virtual
digital assets:-
- Any expenditure incurred in connection with transfer of virtual digital asset,
- Indexation benefit of cost of acquisition
- Cost of improvement
- Exemptions under section 54F
- No deduction under chapter VI-A
What is the
treatment of set off and carry forward of losses for virtual digital assets under Section 115BBH?
As
per Section 115BBH (2) (b) you are
not allowed to set off loss from transfer of virtual digital assets against
income computed under any other provisions. Also such loss is not allowed to be
carried forward for succeeding years.
However,
loss arising on a virtual digital asset is allowed to set off from the gains of
another virtual digital asset. So, virtual digital asset loss is not allowed to
set off from gain in any other heads.
Summary
Section 115BBH has
been introduced to reduce the transaction of virtual digital assets. So the government introduces tax at 30% on
gain on transfer of such assets. TDS is also deducted at 1% as per section194S. By not allowing expense deduction & set off and carry forward this
section brings a lot of strict provisions.