Government to issue clarifications on virtual digital assets soon

Employers will have to pay 30% tax on virtual digital assets (VDAs) such as cryptocurrencies they offer to their employees as compensation or otherwise. This is among detailed clarifications the government is expected to issue this week on the tax on VDAs announced in the budget, officials told ET. The tax will be levied on the difference between the cost of the acquisition of the asset and the transfer price to the employee. In the case of employees, the transfer price would be considered the cost of acquisition.

“Norms are being worked out… These will be issued soon,” a government official said. ET had earlier reported that credit card rewards points and e-vouchers will not be considered VDAs. The clarification is expected to clearly outline the principles for determining the cost of acquisition of VDAs.

The government is examining whether the first-in-first-out method followed for demat securities, weighted average, or last-in-first-out format should be considered to determine the cost of acquisition.

The clarification could also provide some relief on the timeline of payment of tax deducted at source (TDS). “The clarification would address some of the concerns raised by the industry,” another official said.

In the budget for FY23 presented in February, the government brought VDAs into the tax net. Beginning April 1, any income from the transfer of any VDA faces a 30% flat tax. Besides, 1% tax is to be deducted at source (TDS) on transactions in such asset classes above a certain threshold. The 1% TDS is to come into effect from July 1.

The crypto industry has asked the government for a relaxation in the TDS conditions that require payment to be made before the release of consideration in cryptocurrency or other VDA transactions. The industry wants that the tax should be allowed to be paid on or before the due date for payment of TDS.

“Regarding TDS at 1% on consideration in kind or in exchange on transfer of VDA, it is technologically not possible to ensure tax payment before release of consideration as such exchange happens instantaneously,” said Sudhir Kapadia, national tax leader, EY. “It should be clarified that tax can be paid as per normal due dates for TDS payments.”

Under current provisions, TDS is to be deposited by the seventh day of the following month. For instance, if a transaction on which TDS applies takes place on October 21, the same amount deducted has to be deposited by November 7. Only in the case of March, the last month of a fiscal year, can TDS be deposited up to April 30.