Income Tax on Virtual Digital Assets Under Section 115BBH


What is Virtual Digital Asset?

Section 2(47A)-The definition of Virtual Digital Assets proposed to be inserted vide new clause 47A to the section 2 of the Act, where Virtual Digital Assets are defined to cover assets with the following features:

i)        Any information, code, number or token (not being Indian currency or foreign currency)

ii)    Generated through cryptographic means or otherwise, by whatever name called,

iii)  Providing a digital representation of value exchanged with or without consideration,

iv)      With the promise or representation of having inherent value, or functions as a store of value or a unit of account including its use in any financial transaction or investment, but not limited to investment scheme,

v)              And can be transferred, stored or traded electronically.  

Further, Non fungible token (NFTs) and; any other token of similar nature is included in the definition. The NFTs means such digital assets as notified by the Central Government.

In addition to the above, power has been given to the Central Government to notify any other virtual digital asset as virtual digital asset by way of notification in the Official Gazette.

Further, Central Government can notify such assets which shall not be considered as virtual digital assets for the purposes of the proposed section.


Under which Section?

Section 115BBH is being inserted into the Income-tax Act, 1961 for taxation of virtual digital assets.


What is the Rate of Tax?

Gains from various virtual digital assets such as Bitcoin, Ethereum, etc. will be taxed at a flat 30% rate.


Is it Deduction or Exemption?

Except for the cost of acquisition, no deduction in respect of any expenditure will be allowed. No set-off of losses of buying /selling of virtual digital assets from other incomes will be allowed.

The losses from transaction in Virtual Digital Assets shall only be set off against gains from transactions in Virtual Digital Assets and shall not be available for set off against any other income. And, also, such loss shall not be allowed to be carried forward to subsequent assessment years.

What is the TDS Rate?

Further, as per new Section 194-S, 1% TDS for every transaction of virtual digital assets to be effective from 1 July 2022. The threshold limit for TDS would be INR 50,000/year for specified persons (Individuals/HUFs).

However, no deduction will be required wherein the consideration paid during the FY does not exceed Rs. 50,000/- (in case of specified person) or Rs. 10,000/- (in any other case).


Who is it for?

Specified Person for the purpose of section 194S means

i)               An Individual/ HUF whose total sales/Gross receipt does not exceed Rs. 1 crore (in case of business) or 50 lacs (in case of profession) during the FY immediately preceding the FY in which such virtual digital asset is transferred. 

ii)              Individual/ HUF not having any income from the head “Profit and gains of business or profession.


Taxability of Gift?

The expression “property” in Section 56(2)(x) shall include virtual digital assets. Therefore, income arising from gift, or from transfer of virtual digital assets for inadequate consideration, shall be taxed in the hands of recipient.

What is its Applicability?

This amendment will take effect from 1st April, 2023 and will accordingly apply in relation to the assessment year 2023-24 and subsequent assessment years.

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