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Some NFTs and digital assets avoid the 30% tax and 1% TDS, Check what’s included

Some_NFTs_and_digital_assets_avoid_the_30%_tax_and_1%_TDS,_Check

There has been a lot of doubt about how taxes will be handled for virtual digital assets. Many people thought that online transactions that had nothing to do with crypto or blockchains could be taxed as VDAs because the definition of VDAs was so broad. But the government has finally solved the problem by issuing a new clarification that takes some transactions out of the definition of VDA.

In a notice from June 30, 2022, the Central Board of Direct Taxes (CBDT) took the following things out of the list of things that count as “virtual digital assets”:

You can use gift cards or vouchers to buy goods or services. There are also gift certificates that can be used to get discounts on goods and services.

Mileage points, reward points, or loyalty cards that are given out for free as part of an award, reward, benefit, loyalty, incentive, rebate, or promotional program for the purchase or sale of goods or services are not allowed.

It is not allowed to sign up for websites, platforms, or apps.

What experts think

“There were worries that the definition of VDA could include as a typical business transaction digital gift cards or vouchers, mileage points, incentive points, and other items sent as part of a promotion.” Sandeep Jhunjhunwala, a partner at Nangia Andersen LLP, said that this was because a VDA is “a code, number, or token produced by cryptographic techniques that gives a digital representation of value transferred with or without payment.”

“Through the aforementioned notification, the Government has provided a long-awaited exclusion from the definition of VDA for gift cards, vouchers, reward points, and so on that can only be used to buy certain goods or services, as well as subscriptions to websites or platforms,” he said.

Some NFTs are exempt from VDA tax.

Non-Fungible Tokens will have to pay a 30 percent income tax and a 1 percent TDS (NFTs). The CBDT has, however, made it clear that these NFTs would not be treated as VDAs for tax purposes if their transfer led to a legal transfer of ownership of the underlying physical assets.

“… the Central Government hereby specifies a token which qualifies to be a virtual digital asset as non-fungible token within the meaning of sub-clause (a) of clause (47A) of section 2 of the Act but shall not include a nonfungible token whose transfer results in transfer of ownership of underlying tangible asset and the transfer of ownership of such underlying tangible asset is legally enforceable,” the CBDT said in another notification.

The announcement said that NFTs of physical assets, like land records, would not be considered virtual digital assets for tax purposes.

“There were concerns on what would be covered as NFTs, as its taxation under normal provisions could be more beneficial vis-à-vis deemed higher rate of taxation under VDA provisions. The notification is a welcome move by the Government to exclude NFTs which derive value from underlying tangible asset and transaction that involves the transfer of the underlying tangible asset. Hence, not all NFTs would be subject to VDA tax provisions,” Jhunjhunwala said.

About Humano

He is a freelance writer based in Turkey. He loves NFTs, football, film and technology.

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