Chapter 12: Taxation of Digital Transactions, Equalisation Levy & VDAs
1. Taxation of Virtual Digital Assets (Section 115BBH)
Under Section 2(111) and Section 115BBH, income from the transfer of any Virtual Digital Asset (Crypto, NFT, token) is taxed under a standalone regime:
| Parameter | Statutory Rule under Section 115BBH |
|---|---|
| Tax Rate | Flat 30% (+ applicable Surcharge + 4% HEC). |
| Allowable Deductions | Only Cost of Acquisition is deductible. Zero deduction for mining cost, electricity, internet, gas fees, or transfer commissions. |
| Set-off of Loss | Loss from transfer of VDA CANNOT BE SET OFF against any other income (including gains from other VDAs!). |
| Carry Forward of Loss | Loss from VDA CANNOT BE CARRIED FORWARD to subsequent assessment years. |
| Gift of VDA | Taxable in hands of recipient u/s 56(2)(x) if aggregate FMV > ₹ 50,000. |
2. TDS on Transfer of VDA (Section 194S)
| Category of Payer | Threshold Limit | TDS Rate |
|---|---|---|
| Specified Person (Individual/HUF without business turnover > ₹ 1 Cr / ₹ 50L) | Consideration > ₹ 50,000 in a FY | 1% of consideration. |
| All Other Payers (Companies, LLPs, Business individuals) | Consideration > ₹ 10,000 in a FY | 1% of consideration. |
| Crypto-to-Crypto Exchange (In-kind / Barter trade) | Before releasing consideration, buyer must ensure tax has been paid via advance challan. | 1% on both legs of transaction. |
3. Equalisation Levy Framework (Finance Act, 2016)
| Category | Applicable Rate | Threshold & Conditions |
|---|---|---|
| Online Advertisement Services | 6% of gross consideration | Paid to Non-Resident service provider; Annual consideration exceeds ₹ 1,00,000; Service receiver is resident business or PE in India. |
| E-Commerce Supply or Services | 2% of gross consideration | Non-resident e-commerce operator; Annual consideration from Indian residents/users exceeds ₹ 2 Crores. (Sunset/rationalized). |
4. E-Commerce TDS (Section 194-O)
• Payer: E-commerce Operator.
• Payee: E-commerce Participant (Seller).
• Rate: 0.1% (reduced from 1% by Finance Act) on gross sales/services amount.
• Exemption Threshold: No deduction if participant is Individual/HUF, gross amount $\le ₹ 5,00,000$ in a FY, and PAN/Aadhaar is furnished.
• Payee: E-commerce Participant (Seller).
• Rate: 0.1% (reduced from 1% by Finance Act) on gross sales/services amount.
• Exemption Threshold: No deduction if participant is Individual/HUF, gross amount $\le ₹ 5,00,000$ in a FY, and PAN/Aadhaar is furnished.
5. High-Frequency Exam Traps
Trap 1: Inter-VDA loss set-off is PROHIBITED!
If an assessee makes a gain of ₹ 5 Lakhs on Bitcoin and a loss of ₹ 3 Lakhs on Ethereum, tax @ 30% is payable on the ENTIRE ₹ 5 Lakhs! Set-off of ₹ 3 Lakhs loss against the gain is strictly disallowed!
If an assessee makes a gain of ₹ 5 Lakhs on Bitcoin and a loss of ₹ 3 Lakhs on Ethereum, tax @ 30% is payable on the ENTIRE ₹ 5 Lakhs! Set-off of ₹ 3 Lakhs loss against the gain is strictly disallowed!
Trap 2: Equalisation Levy exemption from Income-tax!
Any income arising from specified digital transactions on which Equalisation Levy is chargeable is EXEMPT from Income-tax u/s 10(50) to prevent double taxation!
Any income arising from specified digital transactions on which Equalisation Levy is chargeable is EXEMPT from Income-tax u/s 10(50) to prevent double taxation!