FAQ on crypto taxation, virtual digital assets in the works

The government is working on a cryptocurrency taxation FAQ, which will provide nuanced clarification on the applicability of income tax and GST on virtual digital assets, an official said. The Frequently Asked Questions (FAQ) set, which is being drafted by the Department of Economic Affairs (DEA), RBI and Department of Revenue, will also be reviewed by the Ministry of Justice, the official added. ”Cryptocurrencies and Virtual Digital Assets Taxation FAQ’s are under development. Although the FAQs are for informational purposes and have no legal value, the opinion of the Ministry of Justice is sought to ensure that there is no loophole,” the official told PTI. The DEA, Department of Revenue, and Reserve Bank are working to ensure that the tax aspect is clear for both tax offices in the field and those dealing with cryptocurrencies and other digital assets. virtual. Budget 2022-23 clarified the collection of income tax on crypto assets. From April 1, income tax of 30% plus tax and surcharges will be levied on such transactions in the same way that tax law treats winnings from horse racing or other speculative transactions. The 2022-23 budget also proposed a TDS (withholding tax) of 1% on payments to virtual currencies in excess of Rs 10,000 per year and the taxation of such gifts in the hands of the recipient. The threshold limit for TDS would be Rs 50,000 per annum for specified persons, which includes individuals/HUFs who are required to have their accounts audited under the Information Technology Act. The 1% TDS provisions will come into effect on July 1, 2022, while winnings will be taxed from April 1. From a GST perspective, the FAQ is likely to clarify whether cryptocurrency is a good or a service. Currently, the 18% Goods and Services Tax (GST) is levied only on services provided by crypto exchanges and is categorized as financial services. The GST law does not clearly mention the classification of cryptocurrencies. In the absence of a law on the regulation of these virtual digital currencies, the classification must take into account that the legal framework classifies it in the category “actionable”. An actionable claim is a claim that can be made by a creditor, for any type of claim other than a claim secured by a mortgage on real property. Separately, the government is working on legislation to regulate cryptocurrencies, but no plans have been made public yet.

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