• AK & Partners

Taxation of Virtual Digital Assets

Authored by Kritika Krishnamurthy, Partner & Anushree Jugade, Associate

It is a widely acknowledged fact that trading in cryptocurrency has increased manifolds in recent times. A market has emerged where payment for digital assets such as NFT (non-fungible token) is being made through cryptocurrency such as Ethereum, Bitcoin, Ripple, etc. Presently, there is no law or legal structure in India which regulates the trading or transacting in crypto. However, recently, a provision concerning taxation of virtual digital assets has been introduced through the Finance Act 2022. The definition of ‘virtual digital assets’ (‘VDA’) is inclusive and covers cryptocurrency or other blockchain-based assets. Further, the provision enables the government to add any other digital asset to the list of VDA or exclude/exempt certain assets falling under the proposed definition. Further, the government proposes to launch central bank digital currency and maybe as a substitute for the paper currency in the long term. The same is proposed to be treated like fiat currency and would not fall under the above definition of VDA. The non-fungible token has been added to the definition of VDA and Indian currency or foreign currency has been specifically excluded.


The proposed amendment inserts Section 115-BBH in the Income-tax Act for dealing with taxation of VDA. This shows the clear intention of the government to separate the taxation concerning VDA from taxation on other incomes. The section provides that a flat tax of 30% plus surcharge and cess shall be charged on the income from VDA.

In simple terms, all the gains from the sale, transfer, gift, relinquishment of assets, or the extinguishment of any rights therein will be taxed at the rate of 30%.

There is no tax on the ownership of the assets and tax provision shall trigger only upon transfer or movement of the asset from one person to another. However, no exemption or deduction on the income shall be available to the owner of the VDA except for the cost of acquisition.


The provision shall be applicable from April 1, 2022, prospectively. However, no understanding or clarification has been provided regarding the taxability of crypto assets till March 31, 2022. This does cause anxiety amongst the holder of crypto assets and therefore, a clarification is much needed to soothe the same.

The amendment further proposes to widen the meaning of ‘Income from other sources’ by including the taxation of VDA from all sources of income. Further, a provision for deducting 1% of the VDA sale value at the time of sale shall also be incorporated.[1] This deduction shall be done at the time of transfer. Therefore, establishing a scheme for the advance collection of tax and a trail for verification of instances of transfer by the income-tax department.


Even with high tax incidence, the budget proposals are well appreciated insofar as they provide clarity on the tax laws to be implemented by the government. The above taxation regime will not only contribute to the revenue but also assist in tracking the money trail, thereby controlling instances of money laundering and tax evasion. The government, however, needs to provide clarification on certain aspects that are left open by the budget discussion such as taxability of the past income from VDA, application of Goods and Service Tax provisions in case of trading of cryptocurrencies, applicability to non-resident Indians, etc.


Having realized the future of currencies, the government should table comprehensive legislation to regulate cryptocurrency and related assets. Further, it remains to be seen if the launching of central bank digital currency by the Reserve Bank of India would have any impact on VDA.


[1]Section 194-S Income Tax Act, 1961

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