Cryptocurrencies And NFTs Under The Finance Bill, 2022

By - Prashant Kataria on February 1, 2022

RBI Circular on Cryptocurrency

While the future of cryptocurrencies is as yet uncertain in India with the majority awaiting the introduction of The Cryptocurrency and Regulation of Official Digital Currency Bill (“Crypto Bill”) with bated breath, certain changes introduced to the Income Tax Act, 1962 (“IT Act”) for cryptocurrencies and NFT in Finance Bill 2022 (Bill no. 18 of 2022) (“Finance Bill”) as introduced in the Lok Sabha, provide some clarity on how these assets may be treated - especially from a tax angle.

Table of Contents

Firstly, a new definition of “virtual digital asset” is proposed to be introduced for RBI Circular on Cryptocurrency to amend the IT Act as follows:

“… any information or code or number or token (not being Indian currency or foreign currency), generated through cryptographic means or otherwise, by whatever name called, providing a digital representation of value exchanged with or without consideration, 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; and can be transferred, stored or traded electronically;

(b) a non-fungible token or any other token of similar nature, by whatever name called;

(c) any other digital asset, as the Central Government may, by notification in the Official Gazette specify”. More specifically, “non fungible tokens” have been said to mean “such digital asset as the Central Government may, by notification in the Official Gazette, specify”. Furthermore, the Central Government has retained powers to exclude any digital asset from the definition of “virtual digital asset”.

Section 2(47A), Union Budget 2022-23

Through this wide definition, all types of cryptocurrencies and NFT in RBI Circular on Cryptocurrency seem to have been covered under the definition- “virtual digital assets” and the Central Government has also given itself sufficient leeway to include or exclude any digital assets from this particular definition.

RBI Circular on Cryptocurrency - Coming to the operative part, a new Section 115BBH of the IT Act is proposed to be introduced, which shall come into effect only from April 1st 2023, which is worded as follows:

(1) Where the total income of an assessee includes any income from the transfer of any virtual digital asset, the income-tax payable shall be the aggregate of–– (a) the amount of income-tax calculated on the income from transfer of such virtual digital asset at the rate of thirty per cent.; and (b) the amount of income-tax with which the assessee would have been chargeable, had the total income of the assessee been reduced by the income referred to in clause (a).


(2) Notwithstanding anything contained in any other provision of this Act,–– (a) no deduction in respect of any expenditure (other than the cost of acquisition) or allowance or set-off of any loss shall be allowed to the assessee under any provision of this Act in computing the income referred to in clause (a) of sub-section (1); and (b) no set-off of loss from the transfer of the virtual digital asset computed under clause (a) of sub-section (1) shall be allowed against income computed under any other provision of this Act to the assessee and such loss shall not be allowed to be carried forward to succeeding assessment years.

What Is The Implication Of Section 115BBH Regarding Taxation - RBI Circular on Cryptocurrency

Here's what this all means: Through the addition of this section, at the highest tax slab -- 30% would be applicable on transfer of “virtual digital assets” on the transferor and they shall not be able to avail any expenditure deductions except for the cost of acquisition of such assets and any loss from the transfer of such virtual digital asset shall not be allowed to be set off against other income.

It was also stated by the Finance Minister that gifting of “virtual digital assets” shall also be taxed in the hands of the recipient similarly.

Additionally, a new Section 194S is proposed to be introduced (which shall be effective from July 1st 2022), which provides for 1% TDS (tax deducted at source) to be deducted by the acquirer and deposited it with the tax authorities at the time of paying the consideration.

This is primarily meant to:

  • Capture the digital and financial footprints of the persons transacting in such “virtual digital assets."
  • Give the taxman enough visibility into such transactions occurring across the country.
  • Possibly be a way of keeping the cryptocurrency exchange on the radar through compliance requirements.

The Finance Minister also announced that a “… digital rupee [is] to be issued by Reserve Bank of India using blockchain and other technologies starting FY 2022-23. This will give a big boost to the economy and lead to cheaper and efficient currency management.” In the “Notes on Clauses” section of the Finance Bill, it has also been stated that clarity shall be provided in section 2 of the IT Act to the effect that the Central Bank Digital Currency should also be regarded as banknotes, going on to further bolster this statement and clarifying the advent of the Central Bank Digital Currency.

Some say that the imposition of the highest tax slab and related restrictions may be a way by which the Central Government is wishing to discourage the trade in such virtual digital assets by the masses, however, the other side sees a silver lining with the proposed inclusion of these digital assets under the Finance Bill and the imposition of tax (including clarity concerning TDS). They believe that owing to this change in the IT Act, a hurdle on the path of classifying them as legal assets have been crossed.

However, only time will tell whether this reading of tea leaves is close to reality in the future or not and to what extent the Central Government would legislate on the RBI Circular on Cryptocurrency and NFTs, 2022, but till then, owners of these “virtual digital assets” should be ready to cough up the high toll demanded by the taxman. 

Contributed by Prashant Kataria, Partner

King Stubb & Kasiva,
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