Receiver of virtual digital asset as gift to pay tax on market value: CBDT

New Delhi, February 3 A gift of a virtual digital asset will not be entirely joyful. For, the one receiving it has to pay 30 per cent tax on the market value of the asset at the time of transfer, Central Board of Direct Taxes (CBDT) Chairman JB Mohapatra has said. The new taxation regime will result in exchange of information which, in turn, will help the GST administration, said his counterpart at the Central Board of Indirect Taxes and Custom (CBIC), Vivek Johri .

Mohapatra told BusniessLine: “We have amended Section 56(2) (of the Income Tax Act). We have inserted a provision which implies that in the case of gift of virtual digital assets, with inadequate or without consideration, tax will be imposed on the market value at the recipient’s end. The legislative stance is that we will not wait for you to sell and then declare. The tax will be at market value at the time of gifting, in the hands of the recipient.”

Digital asset

The Finance Bill proposes an amendment to extend the definition of “property” to include virtual digital assets.

Mohapatra’s explanation is critical, as normally when the consideration is ‘nil’ no tax is levied at the recipient’s end as there is no value. However, this will not hold for virtual digital assets, more popularly known as cryptos, as Finance Minister Nirmala Sitharaman, in her Budget speech, proposed that “Gift of virtual digital asset is also proposed to be taxed in the hands of the recipient.”

Mohapatra also said that the section that will be triggered in case of virtual digital assets will be 194S. It casts the responsibility of TDS on the purchaser at the time of payment. “So, if the purchaser is an Indian, if he pays, then he makes that deduction at the rate of 1 per cent, and deposits it with the government. So, at the time of payment, that one per cent is deducted. Now, at the time of sale, they don’t have any obligation but they have to report the surplus they have made.”

“A purchase and sale made here and both the counterparties are stationed here, it’s very easy to correlate. In case of a sale being made to somebody abroad, there will be an issue. We will tackle as and when the issue emerges,” he said.

New taxation regime

CBIC Chairman Johri underlined that the new taxation regime for virtual digital asset will benefit both the direct and the indirect tax administration.

“One oblivious benefit is going to be that we will be able to exchange information with each other because operators who are liable to pay income tax or the purchasers or the people who transact in crypto will also be liable to pay GST on some of those transactions,” he said.

Asked about the confusion over the applicability of GST on services provided by crypto exchanges, he said there is clarity in law... the commission paid to the operator or an exchange providing a platform for transactions in digital currency is a service provided to the users of that platform and therefore it is supply of service that is chargeable to GST.

“In case of exchanges located abroad, the provision is that the place of supply of service would be India because the recipient of service is in India and, therefore, he will be liable to pay GST on reverse charge basis,” he said.

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