Taxation of Virtual Digital Assets (VDA)

Definition of Virtual Digital Asset (VDA)

For the purpose of tax deduction under this section, Virtual Digital Asset (VDA) includes:

1. Any information, code, number, or token generated through cryptographic means, commonly known as cryptocurrency (e.g., Bitcoin, Ethereum, etc.).

2. A Non-Fungible Token (NFT) or any similar token as notified by the Government.

3. Any other digital asset as notified by the Central Government.

Exclusions from Virtual Digital Assets (VDA)

The following shall not be treated as VDA:

• Gift Cards or Vouchers that are used to obtain goods/services or discounts.

• Mileage Points, Reward Points, or Loyalty Cards for promotional rewards.

• Subscriptions to websites, platforms, or applications.

Taxability of Virtual Digital Assets under Section 115BBH

• Section 115BBH, introduced in the Finance Bill, 2022, states that income from the transfer of VDA will be taxable at 30%.

• No deduction except the cost of acquisition will be allowed.

• No indexation benefit even if the VDA is held for more than 36 months.

• No set-off of losses from the transfer of VDA against any other income.

• No carry-forward of VDA losses to subsequent years.

• Even if the total income (including VDA income) is below the basic exemption limit, a tax rate of 31.2% (including Health & Education cess) applies.

• Rebate u/s 87A is allowed under this section as there is no prohibition in 115BBH.

Tax Deduction at Source (TDS) under Section 194S

• Finance Act 2022 introduced Section 194S in the Income Tax Act, 1961.

• Any person responsible for paying a resident any sum as consideration for the transfer of VDA must deduct 1% TDS.

• TDS is deducted at the earlier of:

  • When the sum is credited to the account of the resident.

  • When the payment is made.