Exclusion from TDS provision of Virtual Digital Assets (VDA) & the Exclusion
TDS provision on Virtual Digital Assets (VDA) is applicable from 1st July 2022. In view of this, a timely two notifications are issued by the Ministry of Finance on 30th June 2022 concerning the definition of virtual digital assets dealing with the taxation of cryptocurrencies.
It was expected that the exclusions provided in the definition of the virtual digital asset will help reduce the compliance burden and incidence of tax for a large number of taxpayers.
The first notification provides that a non-fungible token (NFT), which qualifies as a virtual digital asset otherwise, shall not include an NFT whose transfer results in the transfer of ownership of an underlying tangible asset and the transfer of ownership of such underlying tangible asset is legally enforceable.
The second notification excludes the following virtual digital assets from the definition of virtual digital assets for the purpose of taxation.
- A gift card or vouchers, being a record that may be used to obtain goods or services or a discount on goods or services;
- Mileage points, reward points or loyalty cards, 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.
It may be noted that Finance Act 2022 created a legal mechanism to tax transactions in virtual digital assets starting the assessment year 2023-2024. The income from the transfer of virtual digital assets is taxable at the rate of 30%. Any expenditure other than the acquisition cost is not allowed as a deduction while computing income. Set-off of losses is not allowed against any income, including gain on transferring another virtual digital asset.
Carry forward of loss is also not allowed.
Further, a new Form No. 26QF has been introduced under the IT Rules w.r.t. quarterly statement of tax deposited in relation to transfer of VDA to be furnished by an exc