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Gift cards, vouchers, mileage points, reward points, and loyalty cards were used to be categorized as (Virtual Digital Assets) VDAs. But a recent notification issued by the Central Board of Direct Taxes (CBDT) stated that the above will stop being included in the category of VDAs.
The notification which came on 3rd August 2022, states that subscriptions to websites or platforms or applications will be exempted from the definition of VDAs hence will not be subject to tax.
In other notification issued earlier, CBDT stated that, “The Central Government hereby specifies a token which qualifies to be a virtual digital asset as a non-fungible token within the meaning of sub-clause (a) of clause (47A) of section 2 of the Act but shall not include a nonfungible token whose transfer results in the transfer of ownership of the underlying tangible asset and the transfer of ownership of such underlying tangible asset is legally enforceable.”
Here is the copy of circular:-
Impact if the transaction doesn’t involve VDAs:
It simply means that tax won’t be applicable to the above-mentioned types of digital assets. This also says that now tax will be applicable on only Cryptocurrencies and non-fungible tokens (or NFTs).
Earlier this year in February while presenting budget, Nirmala Sitharaman, the union finance minister, proposed taxing “any revenue from transfer of any virtual digital asset” at a rate of 30% and enforcing a 1% tax deduction at source (TDS) on transactions that exceed a certain level.
The notification which came on 3 August also states that it will also exempt subscriptions to websites or platforms or applications from the definition of VDAs.
CBDT’s notification read as follows, “The Central Government hereby notifies following virtual digital assets which shall be excluded from the definition of a virtual digital asset. (i) gift card or vouchers, being a record that may be used to obtain goods or services or a discount on goods or services; (ii) Mileage points, reward points or loyalty card, being a record given without direct monetary consideration under an award, reward, benefit, loyalty, incentive, rebate or promotional program that may be used or redeemed only to obtain goods or services or a discount on goods or services; (iii) Subscription to websites or platforms or application,”
Taxability of VDAs or Tax on income from VDAs?
Budget 2022 presented by Nirmala Sitharaman, the union finance minister, introduced a new tax regime for Virtual Digital Assets (VDAs) that taxes the gains from the transfer of such assets at 30% (plus applicable surcharge and cess) starting financial year (FY) 2022-2023.
So, effective from 1 July 2022, any person responsible for paying to a resident, any consideration for transfer of VDA, shall deduct 1% of such consideration as income tax also called TDS.
Section 115BBH shall be inserted by the Finance Act, 2022, w.e.f. 1-4-2023:
(1) Where the total income of an assessee includes any income from the transfer of any virtual digital asset, notwithstanding anything contained in any other provision of this Act, the income-tax payable shall be the aggregate of—
(a) the amount of income-tax calculated on the income from transfer of such virtual digital asset at the rate of thirty per cent; and
(b) the amount of income-tax with which the assessee would have been chargeable, had the total income of the assessee been reduced by the income referred to in clause (a).
(2) Notwithstanding anything contained in any other provision of this Act,—
(a) no deduction in respect of any expenditure (other than cost of acquisition, if any) or allowance or set off of any loss shall be allowed to the assessee under any provision of this Act in computing the income referred to in clause (a) of sub-section (1); and
(b) no set off of loss from transfer of the virtual digital asset computed under clause (a) of sub-section (1) shall be allowed against income computed under any provision of this Act to the assessee and such loss shall not be allowed to be carried forward to succeeding assessment years.
(3) For the purposes of this section, the word “transfer” as defined in clause (47) of section 2, shall apply to any virtual digital asset, whether capital asset or not.
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