Reward Points, Evouchers May Soon Be Out Of VDAs, Crypto Tax Net

Reward Points, Evouchers May Soon Be Out Of VDAs, Crypto Tax Net

SUMMARY

The central government is working on a ‘set of rules’ on the matter that would be notified soon by the apex direct taxes body, the Central Board of Direct Taxes

VDAs are information, code, number or token not being Indian or foreign currency, generated by cryptographic means or otherwise

The present definition of VDAs covers items generated via cryptographic means ‘or otherwise’, making it wide in its application

Evouchers, points earned on shopping and payments using cards, and other digital rewards might be excluded from the proposed tax on virtual digital assets (VDAs). 

According to a report by ET, the central government is working on a ‘set of rules’ that would be notified soon by the apex direct taxes body, the Central Board of Direct Taxes (CBDT).

VDAs are subsets of all digital assets transacted on a blockchain, such as non-fungible tokens (NFTs), cryptos and other virtual assets. The Finance Bill 2022 has defined VDAs in the newly introduced Clause (47A) under Section 2 of the IT Act, 1961. 

VDAs are information, code, number or token not being Indian or foreign currency, generated by cryptographic means or otherwise, as per the clause. The present definition of VDAs covers items generated via cryptographic means ‘or otherwise’, making it wide in its application.

Therefore, there were concerns that assets acquired through regular transactions could be subject to crypto tax as they have traits of VDAs.

Online gaming startups, payment gateways, credit or debit cards, and ecommerce companies among others give incentives in the form of reward points on purchases made via their platforms. These points are usually stored digitally in the wallet on such platforms.

There are apprehensions that these could be interpreted to include loyalty points, airline miles, discount coupons, and digital bullion among others having virtual traits.

In the past couple of months, the central government has proposed and implemented many rules and regulations related to cryptocurrencies. The government is planning to tighten its grip over crypto regulations so that it could not be used for money laundering or terror financing activities.

A day before it was reported that Indians who earn interest on their cryptocurrencies from foreign platforms will come under the tax department’s lens. The government is mulling to introduce an additional tax deducted at source (TDS) with an equalisation levy on such transactions and the interest income generated from them.

The tax department could levy 20% TDS on such transactions, especially when one of the persons involved in the contract has not submitted his PAN details. The CBDT has consulted a few tax experts to understand how interest income from cryptocurrencies could be brought under the tax net.

Finance Minister Nirmala Sitharaman last month called for stricter regulations on VDAs. She said that the Centre’s move to tax cryptos should not be seen as legitimising them, but rather a way to keep an eye on these VDAs. 

A week before, during an interaction with students and faculty at Stanford University in California, Sitharaman said that India would not rush into any decision over cryptocurrencies and other VDAs, but will take an informed decision.

Sitharaman, in her Budget speech on February 1, had announced that the digital rupee or Central Bank Digital Currency (CBDC) would be issued by the RBI in the coming fiscal year. 

The government already introduced a 30% tax on returns or profits made from VDAs while 1% TDS would also be applicable on every transaction from April this year.

There is no doubt that cryptocurrencies have created a lot of stir in the past. However, the crypto market continues to show positive signals with many crypto startups raising funds such as Flint securing $5.1 Mn from Sequoia Capital India, GFC and a clutch of other investors.

The segment churned out two unicorns last year. In August 2021, CoinDCX closed a $90 Mn Series C funding round, led by B Capital Group, valuing it at $1.1 Bn. Less than two months later, Bengaluru-based CoinSwitch Kuber raised $260 Mn in Series C funding round led by a16z, valuing it at $1.9 Bn. 

An Inc42 report also notes that more than 350 blockchain startups were operational in the country in 2021 with the cryptocurrency segment receiving the highest funding last year till date.

Moreover, a Chainalysis report found that India’s crypto market grew 641% from 2020 to 2021, turning India into one of the largest-growing cryptocurrency markets. 

You have reached your limit of free stories
Become An Inc42 Plus Member

Become a Startup Insider in 2024 with Inc42 Plus. Join our exclusive community of 10,000+ founders, investors & operators and stay ahead in India’s startup & business economy.

2 YEAR PLAN
₹19999
₹7999
₹333/Month
Unlock 60% OFF
Cancel Anytime
1 YEAR PLAN
₹9999
₹4999
₹416/Month
Unlock 50% OFF
Cancel Anytime
Already A Member?
Discover Startups & Business Models

Unleash your potential by exploring unlimited articles, trackers, and playbooks. Identify the hottest startup deals, supercharge your innovation projects, and stay updated with expert curation.

Reward Points, Evouchers May Soon Be Out Of VDAs, Crypto Tax Net-Inc42 Media
How-To’s on Starting & Scaling Up

Empower yourself with comprehensive playbooks, expert analysis, and invaluable insights. Learn to validate ideas, acquire customers, secure funding, and navigate the journey to startup success.

Reward Points, Evouchers May Soon Be Out Of VDAs, Crypto Tax Net-Inc42 Media
Identify Trends & New Markets

Access 75+ in-depth reports on frontier industries. Gain exclusive market intelligence, understand market landscapes, and decode emerging trends to make informed decisions.

Reward Points, Evouchers May Soon Be Out Of VDAs, Crypto Tax Net-Inc42 Media
Track & Decode the Investment Landscape

Stay ahead with startup and funding trackers. Analyse investment strategies, profile successful investors, and keep track of upcoming funds, accelerators, and more.

Reward Points, Evouchers May Soon Be Out Of VDAs, Crypto Tax Net-Inc42 Media
Reward Points, Evouchers May Soon Be Out Of VDAs, Crypto Tax Net-Inc42 Media
You’re in Good company