• By ADMIN
• Posted 12 Aug, 2024
• 2855
• 0

Income tax on Sale of Cryptocurrencies / Virtual Digital Assets (VDA)

In recent years, the popularity of virtual digital assets (VDAs) like cryptocurrencies and NFTs has skyrocketed. However, with their rise comes the responsibility of paying taxes on any income derived from their transfer. In India, the government has introduced a specific section, Section 115BBH, to govern the taxation of income from the transfer of these assets. This article breaks down the key points of this section to help you understand how it affects your tax liabilities.

What is Section 115BBH?

Section 115BBH is a provision under the Indian Income Tax Act that specifically deals with the taxation of income from the transfer of virtual digital assets. This section lays out the rules for calculating the income tax on such transfers and ensures that individuals pay taxes appropriately.

Key Points of Section 115BBH

1. Tax Rate on Income from Virtual Digital Assets:
   - If your total income includes any profit from transferring a virtual digital asset (such as selling cryptocurrency), you will be taxed at a flat rate of 30% on that income.
   - This is regardless of any other income you might have, and it is separate from the tax rate that applies to your other earnings.

2. No Deductions Allowed:
   - When calculating the tax on your income from VDAs, no deductions are allowed except for the cost of acquiring the asset. For example, you cannot claim deductions for any other expenses like transaction fees, brokerage, or other costs that might have been incurred during the transfer.
   - This also means that if you make a loss from the transfer of a VDA, you cannot offset that loss against other income sources, and you cannot carry forward this loss to future years to set it off against future gains.

3. Definition of "Transfer":
   - The term "transfer" here is broad and includes any sale, exchange, or relinquishment of the asset, whether it is classified as a capital asset or not. This means that any movement of ownership of a virtual digital asset will likely trigger a tax event under this section.

A Simple Example to Illustrate

Let's say Mr. Ramesh invests in cryptocurrency. He buys Bitcoin for ₹1,00,000 and later sells it for ₹1,50,000. His profit from this transaction is ₹50,000.

- Under Section 115BBH, Mr. Ramesh will be required to pay 30% tax on this ₹50,000 profit. This amounts to ₹15,000 in tax.
- He cannot deduct any expenses he might have incurred in selling the Bitcoin (like transaction fees) when calculating this tax.
- If instead of a profit, Mr. Ramesh had made a loss, he wouldn't be able to use that loss to reduce his tax liability from other income sources, and he also couldn't carry it forward to the next year.

4. What are the details to be declared in the Income-tax Returns?

Under "Schedule VDA" the following are the details to be declared

1. Date of Acquisition

2. Date of Transfer

3. Head under which income to be taxed (Capital Gain)

4. Cost of Acquisition (In case of gift; a. Enter the amount on which tax is paid u/s 56(2)(x) if any b. In any other case cost to previous owner)

5. Consideration Received

6. Income from transfer of Virtual Digital Assets (enter nil in case of loss)

Conclusion

Section 115BBH imposes strict rules on the taxation of income from virtual digital assets, with a flat 30% tax rate and no deductions for most expenses. This is important for anyone dealing with cryptocurrencies or other VDAs to understand, as it can significantly impact their tax liabilities. If you're engaging in such transactions, it's advisable to consult with a tax professional to ensure compliance and optimal tax planning.