Whether digital gift cards are Virtual Digital Assets ?

Whether digital gift cards are Virtual Digital Assets ?

Meaning of Virtual Digital Asset :

Definition of VDA: Section 2(47A) of the Income Tax Act defines a VDA as any digital item like data, code, numbers, or tokens (excluding Indian or foreign currency) created using cryptography or other methods. This includes non-fungible tokens and other tokens, representing value that can be exchanged, stored, traded, or transferred electronically.

A Virtual Digital Asset (VDA) is defined as:

A Virtual Digital Asset refers to any type of digital item like data, code, numbers, or tokens (excluding Indian or foreign currency) that is created using cryptography or other methods. It represents value that can be exchanged with or without payment.  This digital value can be used in financial transactions or investments, stored, traded, or transferred electronically. It includes non-fungible tokens or any other token, regardless of its name. It also includes any other digital asset that the Central Government may declare as a Virtual Digital Asset via official notification.

Explanation:

According to the Income Tax Notification No. 74/2022 dated 30th June 2022, certain digital assets are explicitly excluded from the definition of VDAs. This notification provides clarity on what constitutes a Virtual Digital Asset and what does not. Here are the key points relevant to your query:

1. Exclusions from Virtual Digital Asset: Notification 74/2022 explicitly excludes the following from being classified as VDAs:

• • Gift cards or vouchers: These are digital records used to obtain goods or services or receive discounts.
  • Mileage points, reward points, or loyalty cards: Issued under promotional programs and redeemable for goods, services, or discounts.
  • Subscriptions to websites or platforms: Digital records associated with accessing services on specific platforms.

• Digital gift cards are not considered Virtual Digital Assets.

As per the Income Tax Notification No. 74/2022, dated 30th June 2022, digital assets such as gift cards or vouchers are explicitly excluded from being classified as Virtual Digital Asset. The notification also excludes items like mileage points, reward points, loyalty cards, and subscriptions to websites or platforms. So digital gift cards do not fall under the definition of a VDA and are not subject to the 30% tax on income from Virtual Digital Asset

Virtual Digital Asset – Taxability & Implications:

Section 115BBH: Tax on Income from VDAs

• Since digital gift cards are excluded from VDAs, they are not subject to the 30% tax on income derived from VDAs as stipulated under Section 115BBH of the Income Tax Act. . Income from the transfer of VDAs is taxable at a flat rate of 30% (plus applicable surcharge and cess).
• 30% Flat Rate on income from the transfer of VDAs, applicable irrespective of the individual’s tax slab. & Applicable surcharge and cess. As far as Deductions is concern Only the cost of acquisition is allowed as a deduction. No other expenses can be deducted. Only cost of acquisition is allowed as a deduction from income. No other expenses are allowed as a deduction.
• In case of Losses under VDA, it cannot be set off against any other income. However VDA cannot be carried forward to future years.
• While Virtual Digital Asset like cryptocurrencies are regulated and subject to specific tax provisions, digital gift cards do not fall under these regulations and are treated differently for tax purposes. Based on the Income Tax Notification No. 74/2022, digital gift cards are explicitly excluded from the definition of Virtual Digital Assets (VDAs). Therefore, they do not fall under the Virtual Digital Asset taxation rules and are not subject to the 30% flat tax on income derived from VDAs.
• Special incomes from gambling winnings, online gaming wins, virtual digital assets (VDA), betting wins, or game show wins are not eligible for tax rebates under Section 87A of the new tax regime. A flat tax rate of 30% is applicable on the income, along with an additional surcharge and cess.

Section 56(2)(x): Gift of Virtual Digital Asset:

VDAs are included in the definition of “property” for gifting purposes. Gift of Virtual Digital Asset Tax Implications: it is to be consider as Taxable as “Income from Other Sources” for the recipient. However, Gifts from relatives or on certain occasions.

Gift cards are excluded As per notifications 74/2022 dated 30th June, 2022,  following digital assets are excluded from being considered VDAs:

• Gift cards or vouchers
• Mileage points, reward points, or loyalty cards
• Subscriptions to websites or platforms

Tax on STCG, LTCG, VDA, Crypto etc. are not eligible for Rebate us 87A in NEW TAX REGIME

Section 194S: TDS provisions on transfer of Virtual Digital Assets:

The TDS provisions related to the transfer of Virtual Digital Asset are outlined in Section 194S of the Income Tax Act, which was introduced as part of the Finance Act, 2022. These provisions are intended to regulate the taxation on the transfer of VDAs and to ensure tax collection at the source. Here’s a breakdown of the TDS provisions:

Applicability of TDS on Virtual Digital Assets under Section 194S:

• The TDS provisions under Section 194S aim to bring clarity and accountability to transactions involving Virtual Digital Asset by ensuring that tax is collected at the source, regardless of whether the payment is made in cash, kind, or a combination of both. The rate is 1% of the total transaction value, with varying thresholds for specified and non-specified taxpayers.
• When: TDS is required to be deducted when a person (buyer) makes a payment to the seller for the transfer of a Virtual Digital Asset. The buyer is responsible for deducting the TDS at the time of crediting the payment or at the time of actual payment, whichever is earlier.
• TDS Rate: The rate of TDS is 1% of the total transaction value.
• Transfer in Kind or Partly in Kind: The provisions of Section 194S apply even when the payment for the transfer of Virtual Digital Asset is made in kind or partly in kind and partly in cash. In such cases, the buyer must ensure that the TDS is deducted before transferring the consideration (payment).

Threshold Limits applicable on Virtual Digital Assets:

• For specified taxpayers (i.e., Individuals or HUF subject to tax audit), TDS is required when the total payment exceeds INR 10,000 in a FY.
• For non-specified taxpayers (i.e., Individuals or Hindu Undivided Families not subject to tax audit), TDS applies when the payment exceeds INR 50,000 in a FY.

Exemptions and Special Cases in the matter of VDA:

• If the transfer of Virtual Digital Asset takes place through an exchange, the exchange may assume responsibility for deducting TDS on behalf of the buyer, subject to a written agreement.
• Transactions involving Virtual Digital Asset traded for other Virtual Digital Asset also fall under the ambit of Section 194S. Both parties (as buyers and sellers) are required to deduct TDS for such transfers.

Address transactions where consideration is not in kind.

Peer-to-Peer Transactions:

• Buyer Responsibility: Deduct TDS and deposit with the government.
• Reporting: Furnish quarterly statements using Form 26Q or Form 26QE.

Partly in Kind and Partly in Another Virtual Digital Asset:

• Tax Payment: Ensure tax is paid before releasing consideration.
• Proof of Payment: Seller must provide challan details to receive the balance consideration.

Scope of NFTs: Notification 75/2022 (Dated 30th June 2022)

• Included as Virtual Digital Assets: NFTs not linked to tangible assets.
• Excluded as Virtual Digital Assets: NFTs related to tangible assets where transfer results in legal ownership change of the underlying asset.

TDS Return Compliance for Virtual Digital Assets & Reporting:

• Buyers and Sellers: Must be aware of their TDS obligations. Moreover that Exchanges and Brokers: Have specific responsibilities regarding TDS deductions and reporting.
• The person responsible for deducting TDS must deposit the deducted tax with the government and furnish the details in the prescribed format (e.g., Form 26Q or Form 26QE for specified persons) within the stipulated timelines.

FIU IND issues compliance Notices to 9 offshore VDA Service Providers

For details refer  Press Release:Press Information Bureau (pib.gov.in)