Topic: Analysing the Cryptocurrency tax regime in India

Group Members (Sec A) –

Divyansh Agarwal (19010174)
Siddharth Gupta (19010481)

I. Significance of the topic:

 Why we chose this topic?

o The digital assets market has a net value of more than 2.1 trillion dollars and
has a consumer base more than 200 million. The most prominent digital asset,
BITCOIN, which was first introduced into the digital market in 2009, now has
a market value of approximately 900 million dollars. Cryptocurrency is an
essential part of the digital assets market and has a huge presence in the world
economy. Eventually, the Indian market was also invaded by the digital
currency market. The Indian government in financial budget of 2022-23
introduced a 30% tax on virtual assets or digital assets. However, not many
people are aware of the exact provisions that propose this tax and how they fit
into the Indian Tax regime. Therefore, we wish to analyse the provisions that
provide for this tax and examine the shortcomings of this provision.

II. Outline of the presentation:

 What are digital assets and types of digital assets.

o Definition of digital assets.
o Definition of some of the popular types of digital assets (like cryptocurrencies,
crypto commodities, utility tokens, security tokens and hybrid tokens.)

 Finance Bill 2022-2023

o Definition of virtual digital assets in the finance bill. We will discuss Section
2(47A) of the Income Tax Act, 1961 that was introduced in this finance bill.
o Computation of income from the transfer of virtual digital assets and the tax
rate on this income. We will discuss Section 115BBH of the Income Tax Act,
1961 that was introduced in this finance bill.
o We will further divide Section 115BBH into four parts for better
understanding of it. These four parts are i) income or the capital gains from the
trading of virtual digital assets. ii) income from the transfer of virtual digital
assets would not be computed under the income tax of the assessee. iii) cost of
acquisition will be the only deduction allowed when computing the capital
gains from the trading of virtual digital assets. iv) set-off and carry forward of
losses which occur because of the transfer of virtual digital asset will be
allowed.
o Deduction of Tax at source. We will discuss Section 194S of the Income Tax
Act, 1961 that was introduced in this finance bill and how is it different from
Section 194A of the Income Tax Act, 1961.

 Analysing the Virtual Digital Tax.

o Classification of virtual digital assets vis-à-vis the Income Tax Act, 1961. In
this part, we will look at whether virtual digital assets could have been
classified under heads like capital gains and profits and gains from business or
 profession. We will be referring to Chapter XII of the Income Tax Act, 1996
and Section 2(14) of the Income Tax Act, 1996.
o Deduction of losses. We will analyse whether the amendments made to the
Income Tax Act, 1961 allow for deduction for losses in virtual digital assets
from gains in virtual digital assets. If not, we will look at the reasons for the
same and whether they should allow the deductions for losses or not.
o The amendments made to the Income Tax Act, 1961 do not talk about how the
tax on income from virtual digital assets will be charged. This presents us with
many problems; the primary one being regarding how to determine what the
situs of a virtual digital asset is. This problem was also noted in the case of
CUB Pty. Ltd. v. Union of India [2016] 288 CTR 361 (Delhi) which we will
be referring to.
o We will also refer to the tax regimes of other countries like USA, Singapore,
UK and China and thus propose some suggestions.