Gift cards, coupons and reward points will not be considered as virtual digital assets (VDAs), and will not fall under the steep 1% tax deducted at source (TDS) levy on digital assets such as cryptocurrencies, according to a government notification.
A 1 per cent TDS on VDAs' transactions comes into play from today, July 1, 2022, in addition to a 30 per cent rate on income from activities on such assets, but a notification has clarified that some items won't be counted as digital assets.
All virtual digital assets (VDAs) transactions, including those involving cryptocurrencies and non-fungible tokens (NFTs), worth more than Rs 10,000 will be subject to the TDS deduction from today, July 1, 2022.
In clause 47 A added to the Income Tax Act, "VDA" is defined as any information, code, number, or token formed using cryptography or other techniques and excluded Indian or any other foreign currency. Non-fungible tokens and any others that fit the same description are included.
But the Central Board of Direct Taxes (CBDT) said in a notification that certain digital items would be excluded from the definition of virtual digital assets (VDAs).
The CBDT notification said, "the Central Government hereby notifies following virtual digital assets which shall be excluded from the definition of a virtual digital asset. (i) gift card or vouchers, being a record that may be used to obtain goods or services or a discount on goods or services; (ii) Mileage points, reward points or loyalty card, being a record given without direct monetary consideration under an award, reward, benefit, loyalty, incentive, rebate or promotional program that may be used or redeemed only to obtain goods or services or a discount on goods or services; (iii) Subscription to websites or platforms or application."
That notification came into effect yesterday, June 30, 2022. It will ensure that those items listed as exempt do not fall under the TDS bracket set for cryptocurrencies, NFTs and other digital assets.
But tangible asset-backed NFTs will be excluded from the definition of VDAs, the government clarified.
The government in February announced plans to tax any income from cryptocurrency assets at a flat 30 per cent rate. It defined virtual digital assets vaguely at the time, leading to confusion about whether items like online gaming coupons, website subscriptions and reward points would also be taxed, Amit Maheshwari, managing partner at Ashok Maheshwary & Associates, told Bloomberg
“With this clarification now, this ambiguity has been addressed and they do not have to bear the tax burden of 30 per cent which will also create certainty in this space,” Mr Maheshwari added, according to Bloomberg.