FinMin Proposes Changes to Finance Bill for Taxation of Crypto Assets

The government proposed on Thursday to toughen cryptocurrency taxation standards by prohibiting the offsetting of any losses with gains from other virtual digital assets (VDAs). This was part of the 39 amendments proposed by the government to the 2022 finance bill.

Finance Minister Nirmala Sitharaman is expected to propose an amendment on Friday, clarifying that no tax deductions or compensation would be available in lieu of the cost of mining crypto assets and other VDAs or losses resulting from their transfer.

Additionally, all “transfers” of VDAs or crypto assets would be covered by the proposed 30% tax, whether or not they are capital assets. In addition, only the proposed withholding tax (TDS) rate would be applicable to ARV transactions, not the rate provided by any other provision.

The Union Budget 2022-23 had proposed to tax crypto assets at the rate of 30%, starting April 1.

He also proposed 1% TDS on payments to virtual assets in excess of Rs 10,000 per year and taxation of such gifts in the hands of recipients. The TDS provision will come into effect from July 1.

The Finance Bill is expected to be presented to the Lok Sabha for discussion and adoption on Friday.

The meaning of “transfer” was not clear in the draft law since the definition of the term provided in Article 2(47) applied only to fixed assets. The proposed amendment now seeks to remove the ambiguity by inserting a sub-section which applied definition 2(47) to the transfer of VDAs, whether construed as fixed assets or not, explained Sandeep Jhunjhjnwala, Partner, Nangia Andersen LLP.

The amendment follows a clarification by Pankaj Chaudhary, Minister of State for Finance, that the loss from the sale of one crypto would not be offset by the gain from the sale of another crypto. Further, in computing the income from such a transfer, no deduction is allowed for any expense (other than the cost of acquisition) or allowance.

Amendment of the Customs Act

The Money Bill proposed to insert a new Section 135AA into the Customs Act which stated: “If a person publishes information relating to the value, classification or quantity of goods declared for export from India or imported into India, or particulars of the exporter or importer of such goods under this Act, unless required to do so under any law then in force, it shall be punishable by imprisonment of up to six months, or a fine of up to Rs 50,000, or both”. The amendment now seeks to remove the six months imprisonment and the penalty of Rs 50,000.

Education tax

The Finance Bill 2022 had proposed a retrospective denial of surcharge or surrender deduction under section 40(a)(ii) with effect from AY2005-06. Doubts had been raised by taxpayers about the potential impact on past claims and the risk of penalty due to the amendment.

An amendment has been proposed in the Finance Bill 2022 which has the effect of providing that the deduction of the surcharge or tax which has been claimed and granted to the taxpayer will be deemed to be under-declared income and will therefore be subject to a 50% reduction. sadness.