The government has proposed 39 amendments to the Finance Bill 2022, including changes to the structure of the crypto tax; penalty provisions on the publication of import and export data and on the statement of previous income calculations which claimed the deduction of tax and unauthorized surcharges.
The discussion on the bill is expected to take place on Friday at Lok Sabha.
No intra-asset netting in crypto-tax
Since its introduction, the crypto tax has divided experts on whether the loss of a virtual digital asset would be allowed to be offset against the income of another virtual asset. For example, can Bitcoin losses be offset by NFT profits?
Last week, the government clarified that no in-asset netting would be available in the virtual digital asset tax regime.
Via the Finance Bill 2022, it is proposed to introduce a new section for the taxation of virtual digital assets. Starting April 1, any income from the transfer of a virtual digital asset will be taxed at 30%.
The provision also stated that any loss incurred on the transfer of the virtual asset would not be allowed to be deducted from any income computed under “other” provision of income tax law.
The amendment now deletes the word “other” to say that any loss incurred in the transfer shall not be permitted against any provision of law.
The amendment is a sign of the continuation of the government’s very conservative stance on the taxation of crypto assets, said Gouri Puri, partner at Shardul Amarchand Mangaldas & Co.
The amendment also clarifies that the transfer of a virtual digital asset will include any virtual digital asset, whether or not it is a capital asset.
The meaning of “transfer” was unclear since the definition of the term applies to fixed assets, said Sandeep Jhunjhunwala, Partner, Nangia Andersen LLP.
The amendment now seeks to disambiguate that the term “transfer” will also include digital assets. The old definition applied to fixed assets and now the same meaning will apply to virtual assets.
Penalty provision on publication of import-export data removed
The Union Budget 2022 had also introduced a provision providing penalties for the publication of any information provided to customs by an exporter/importer under the Customs Act 1962.
The proposed section makes publication of information in violation of the law punishable by imprisonment of up to six months and a fine of up to 50,000 rupees or both.
The government has amended the provision to say that the penalty under the provision will only include imprisonment.
Clarification of the retrospective application of the prohibition of the deduction of the franchise/surcharge
The 2022 finance bill had proposed a retrospective refusal of deduction for surcharge or transfer.
The decision was retroactive from the 2005-06 assessment year and raised doubts about the impact of past claims and a possible risk of penalties, Jhunjhunwala pointed out.
The proposed amendment now explains that any surtax or assessment deduction that has been claimed and authorized will be considered underreported income for that previous year. And a 50% penalty will apply.
It appears that claims pending in appeals are not subject to penalties as they have not yet been cleared to taxpayers, Jhunjhunwala explained.
However, there is a way out.
The proposed amendment allows the taxpayer to submit an application and request a recalculation of total income for the year in which the surtax or tax deduction was claimed.
Once the amount of tax applicable after the disallowance of tax and surcharge is paid, the assessee’s income would no longer be considered underreported, according to the proposed amendment.