Recipient of a virtual digital asset as a gift to pay market value tax: CBDT


New Delhi, February 3 Donating a virtual digital asset will not be entirely joyful. Because, whoever receives it must pay a tax of 30% on the market value of the asset at the time of the transfer, said the president of the Central Board of Direct Taxes (CBDT), JB Mohapatra. The new tax regime will result in an exchange of information which, in turn, will help the GST administration, said his counterpart at the Central Board of Indirect Taxes and Customs (CBIC), Vivek Johri.

Mohapatra said BusniessLine: “We have amended section 56(2) (of the Income Tax Act). We have inserted a provision which implies that in case of donation of virtual digital assets, with inadequate consideration or without consideration, a tax will be imposed on the market value at the recipient. The legislative position is that we will not wait for you to sell and then declare. The tax will be at market value at the time of donation, in the hands of the recipient.

digital asset

The Finance Bill proposes an amendment to expand the definition of “ownership” to include virtual digital assets.

Mohapatra’s explanation is essential, because normally when the consideration is “zero”, no tax is levied on the beneficiary’s side because there is no value. However, this will not apply to virtual digital assets, popularly known as cryptos, as Finance Minister Nirmala Sitharaman in her budget speech proposed that “the gift of a virtual digital asset should also be proposed to be taxed in the hands of the addressee”.

Mohapatra also said that the section that will be triggered in case of virtual digital assets will be 194S. It places the responsibility of TDS on the buyer at the time of payment. “So if the buyer is an Indian, if he pays, he takes that deduction at the rate of 1% and deposits it with the government. Thus, at the time of payment, this 1% is deducted. Now, at the time of the sale, they have no obligation but they must declare the surplus they have made.

“A purchase and a sale made here and the two counterparties are stationed here, it is very easy to correlate. If sold to someone overseas, there will be a problem. We will tackle as the problem emerges,” he said.

New tax regime

CBIC Chairman Johri pointed out that the new tax regime for virtual digital assets will benefit both direct and indirect tax administration.

“An unconscious benefit is going to be that we will be able to exchange information with each other because operators who are required to pay income tax or buyers or people who transact in crypto will also be required to pay income tax. GST on some of those transactions,” he said.

Asked about the confusion over the applicability of GST on services provided by crypto exchanges, he said there was clarity in the law…the commission paid to the trader or an exchange providing a digital currency trading platform is a service provided to users of that platform and therefore it is the provision of services that is chargeable to GST.

“In case of exchanges located overseas, the provision is that the place of supply of the service would be India because the recipient of the service is in India and hence he will be liable to pay GST on the basis reverse charge,” he said.

Published on

February 03, 2022


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