Virtual digital assets taxation: Revenue Department to up its technology game to track transactions, says Revenue Secy Tarun Bajaj

A day after Finance Minister Nirmala Sitharaman presented her fourth Budget, Revenue Secretary Tarun Bajaj met BusinessLine at his North Block office to share his thoughts on the taxation proposals in the budget including the much talked about taxation of virtual digital assets. Excerpts: Crypto incomes are already taxable. What is new about the latest Budget proposal on taxation of virtual digital assets? We are bringing a certainty as to how it will be taxed. When we had gone into the returns, we realised that some people are not even showing this. People are only showing the transactions. Their buying is less and selling is more. There are lot of discrepancies. There is also the issue that they are showing it in different heads like short term capital gain or business income or other sources. We want to bring certainty to it. We also want to convey that we want to tax it at the highest marginal rate with applicable surcharge. We also wanted to have TDS so that we can have a trail. We will also seek information as to who all have traded on this so that we can keep a check. My basic purpose is certainty of taxation and tax be paid on the gains made from such transactions. If TDS comes, they will have to file the return disclosing such gains. This will also bring check on money going abroad and getting used for money laundering etc. 

Does this mean you are legalising it? Legal or illegal is something for you to interpret. We as Revenue Department would also not get into regulated or unregulated. As far as taxation is concerned, tax does not go into this. You can do speculation or make profits of speculation, but you have to pay taxes on that. What we are saying is we are not going into that aspect at all. Since this activity has become quite active in the last one year,we want to tax you on the gains or profit you make. The Finance Minister had emphasised this again and again yesterday. Our position is clear. That thing (regulating it) will come out only when the Bill happens and if at all it happens. Government has to take a view on the Bill separately.

 So how will the TDS mechanism work? Will you also prosecute people for false disclosures? Our intention is not to prosecute people. We will levy TDS (from July 1, 2022) on the transaction value (turnover). Of course, there will be a threshold (₹50,000) specified beyond which TDS will be applied. If you have made profits and you don’t show it in return, we will still get information from the exchange. We will also cast obligation on persons to share such information with us that so and so has dealt in this product and this is the information. Then we will do as we do for other cases. But the taxes is on profits and losses cannot be set off or carried forward. 

How will you keep track of the transactions that happen in international crypto exchanges? Unlike other transactions that take place through cash or hand, at least there is an electronic trail to this. We will also be working on trying to track them through technology. This is also new area for us.

What about jurisdictional issues when Indians are transacting on cryptos in crypto exchanges domiciled abroad? Then you may be also violating FEMA in that case. That means people are sending money from here and they may be violating Foreign Exchange Management Act ( FEMA). Then you are violating the law of the land and then you are responsible for that action and State can follow. Our Income tax department and ED have gone to the crypto exchanges and culled out data. That is how we are able to go ahead and frame a specific scheme for taxation of virtual digital assets.

Do you have a target within Revenue Department on how much you want to collect from taxation of virtual digital assets in 2022-23?

No we don’t have a specific target. But we have enough data to understand the volume and value of transactions that are taking place in virtual digital assets. You must also understand that tax gets attracted on profits from trading.

On tax revenue estimate where you have budgeted 14 per cent growth, is it not a bit ambitious? I am happy you are saying this ( bit ambitious). Others are saying that we have been very conservative. Given that we have projected nominal GDP of 11 per cent, then at 14 per cent tax buoyancy is about 1.25, it is very challenging. I agree with you. We in the department are working on technology and compliances. Some of the tax revenue increase are going up due to economy, but some are also going up due to our efforts on this. We have now allowed income tax returns to be updated.

For updated returns, are you not being harsh on taxpayers by requiring them to pay additional tax of 25 per cent for the first year or even 50 per cent in other cases? If I don’t do that, there won’t be discipline to file returns. If you can update returns without additional tax, then you will file returns after two years. Why should I allow that. The number of cases will be larger now as so much of his financial information are thrown at the taxpayer that he may have genuine reasons for having missed certain incomes ( like savings bank interest). This move to allow updated returns is also showing the government’s trust in you. This will also make life easier for the tax payer and I am also reducing workload of the Department. 

On tax-GDP ratio, do you think direct taxes will again surpass indirect taxes? After all, levy of indirect taxes is in a way anti-poor? Last year was a particular year. In May 2021, we were able to raise taxes on petroleum products. Indirect taxes are based on consumption, while direct taxes are on incomes. You had to closedown the country due to second wave of pandemic. So it had an effect on income of people and corporates. Direct taxes suffered more than indirect taxes. But this year direct taxes will be much more than indirect taxes. It will exceed next year also.

As country progresses, we should move much more to direct taxes from indirect taxes. Direct taxes require much more compliance than indirect taxes, which is easier to collect. We really need to expand our tax base. Now emphasis of the Revenue Department will be to nudge people to come into tax net net.

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