Which Crypto Assets Fall Under the VDA Rules?
According to the tax department’s explainer, crypto assets, NFTs, and other digital assets fall under the broader definition of Virtual Digital Assets. In addition, crypto assets that represent value and rely on cryptographically secured distributed ledger technology are also included under this category.
However, it is worth noting that not all digital assets can automatically be considered a VDA. Indian currency, Central Bank Digital Currency (CBDC), foreign currency, and some notified digital assets are reportedly excluded from the VDA definition. Other exclusions include certain gift cards, vouchers, reward points, loyalty cards, and subscriptions. Some NFTs linked to ownership of underlying tangible assets are also not considered under this class.
What the 30% Crypto Tax Means for Investors
Despite the new VDA framework, the crypto tax burden remains the same for Indian investors. If an individual earns any gain from a crypto transaction, the amount is subject to a flat 30% tax. It comes with an additional surcharge and cess.
The rules also allow investors to deduct only the cost of acquiring the VDA while calculating taxable income. Other expenses cannot be claimed as deductions. It is also important to understand that losses from VDA transactions cannot be set off against other income or carried forward to future years. This means that investors need to track their purchase costs, sale proceeds, and losses carefully while filing their crypto taxes.
How the 1% Crypto TDS Rule Works
Notably, TDS stands for Tax Deducted at Source. The 1% TDS is the tax deducted under Section 194S when the payment is made, before the money reaches the recipient.
At the same time, the TDS crypto tax rules come with some conditions. For example, eligible candidates or Hindu Undivided Families (HUFs) with business turnover less than ₹1 crore, or professional receipts below ₹50 lakh, will not have to pay the TDS if the total consideration does not exceed ₹50,000. For other taxpayers, the threshold is ₹10,000.
What Section 285BAA Means for Crypto Reporting
Interestingly, there is a major change in the reporting requirement in the new VDA rules. Under Section 285BAA, prescribed reporting entities need to share information about certain crypto transactions with the Income Tax Department.
Nonetheless, this does not change the taxpayer’s responsibility to submit their crypto transaction details while filing the crypto tax returns. Despite the VDA framework, taxpayers need to keep records of their transfers, calculate taxable gains, and report them when needed.
What Happens If Crypto Reporting Rules Are Not Followed?
If the new crypto reporting rules are not followed, entities may face huge penalties. Entities that delay submitting the required details may face a penalty of ₹200 for each day of default. If they submit inaccurate information, they may receive up to ₹50,000 in fines.
Thus, for investors, the key takeaway in the new VDA framework is that the regulations do not change the existing crypto tax rules. Instead, some crypto reporting rules are introduced. Indian investors should still keep necessary details of their transfers to comply with the crypto tax rules.
Related: India’s Tax Problem Isn’t High Rates. It’s Too Few People Earning Enough to Pay Them
