FinMin proposes changes to Finance Bill for crypto assets' taxation

FM Sitharaman is expected to move an amendment clarifying that no tax deduction or set off would be available in place of mining cost of crypto assets and other VDAs or losses from their transfer

The government on Thursday proposed to tighten the norms for taxation of cryptocurrencies by disallowing set-off of any losses with gains from other virtual digital assets (VDAs). This was part of the 39 amendments proposed by the government to the Finance Bill, 2022.

Finance Minister Nirmala Sitharaman is expected to move an amendment on Friday, clarifying that no tax deduction or set off would be available in place of mining cost of crypto assets and other VDAs or losses from their transfer. 

Besides, all “transfers” of VDAs or crypto assets would be covered under the proposed 30 per cent tax, irrespective of whether they were a capital asset or not. Also, only the proposed rate of tax deducted at source (TDS) would be applicable to VDA transactions, and not the rate under any other provision. 

The Union Budget 2022-23 had proposed taxing crypto assets at the rate of 30 per cent, effective from April 1. 

It also proposed 1 per cent TDS on payments towards virtual assets beyond Rs 10,000 in a year and taxation of such gifts in the hands of recipients. The TDS provision will come to effect from July 1.

The Finance Bill is expected to be taken up in the Lok Sabha for discussion and passage on Friday.

The meaning of the “transfer” was unclear in the Bill as the definition of the term provided under Section 2(47) applied only in relation to capital assets. The proposed amendment now seeks to clear the ambiguity by inserting a sub-section which applied the 2(47) definition to the transfer of VDAs, irrespective of whether they are construed as capital assets or not, explained Sandeep Jhunjhjnwala, partner, Nangia Andersen LLP. 

The amendment followed a clarification by Pankaj Chaudhary, minister of state for finance, that loss from sale of one crypto would not be set off against the gain from the sale of another crypto. Further, while computing the income from such a transfer, no deduction in respect of any expenditure (other than the cost of acquisition) or allowance is allowed.

Amendment in Customs Act 

The Finance Bill had proposed to insert a new Section 135AA in the Customs Act which stated: “If a person publishes any information relating to the value or classification or quantity of goods entered for export from India, or import into India, or the details of the exporter or importer of such goods under this Act, unless required so to do under any law for the time being in force, he shall be punishable with imprisonment for a term which may extend to six months, or with fine which may extend to Rs 50,000, or with both”. The amendment now seeks to remove the six-month imprisonment and Rs 50,000 penalty.

Education cess

The Finance Bill, 2022 had proposed a retrospective disallowance of deduction for surcharge or cess under Section 40(a)(ii) with effect from AY2005-06. Doubts had been raised by taxpayers over the potential impact on past claims and risk of penalty on account of the amendment. 

An amendment has been proposed in the Finance Bill, 2022 which has the effect of providing that deduction of surcharge or cess which has been claimed and allowed to the taxpayer will be deemed to be under-reported income and thus be subjected to a 50 per cent penalty.