The government has proposed 39 amendments to the Finance Bill, 2022, including changes to the crypto tax structure; penalty provisions on publication of import-export data and status of past income computations that claimed deduction of disallowed cess and surcharges.
The discussion on the bill is likely to take place on Friday in the Lok Sabha.
No Intra-Asset Setoff In Crypto Tax
Ever since its introduction, crypto tax has divided experts on whether loss from one virtual digital asset would be allowed to be set off against income from another virtual asset. For instance, can loss from Bitcoin be set off against profit from NFT?
Last week, the government clarified that no intra-asset setoff would be available in the tax regime for virtual digital assets.
Via the Finance Bill, 2022, a new section is proposed to be introduced for taxation of virtual digital assets. Effective April 1, any income from transfer of a virtual digital asset will be taxed at 30%.
The provision also said any loss incurred during the transfer of the virtual asset would not be allowed to be set off against any income calculated under “other” provision of the income tax law.
The amendment now removes the word “other” to say that any loss incurred during the transfer will not be allowed against any provision of the act.
The amendment is a sign of the continuation of the government’s very conservative stance on taxation of crypto assets, said Gouri Puri, partner at Shardul Amarchand Mangaldas & Co.
The amendment also clarifies that transfer of virtual digital asset will include any virtual digital asset, irrespective or whether it is a capital asset or not.
The meaning of the phrase “transfer” was unclear since the definition of the term applies in relation to capital assets, Sandeep Jhunjhunwala, partner, Nangia Andersen LLP, said.
The amendment now seeks to clear the ambiguity to say that the term “transfer” will include digital assets as well. The earlier definition was applicable for capital assets and now the same meaning will apply to virtual assets.
Penalty Provision On Publishing Import-Export Data Removed
The Union Budget 2022 had also introduced a penalty provision for publishing of any information furnished to the customs by an exporter/importer under the Customs Act, 1962.
The proposed section made publishing information in violation of the law punishable with imprisonment extending up to six months and fine of up to Rs 50,000 or both.
The government has amended the provision to say that the punishment under the provision will only include imprisonment.
Retrospective Application Of Disallowing Cess/Surcharge Deduction Clarified
The Finance Bill, 2022 had proposed a retrospective disallowance of deduction for surcharge or cess.
The move was given retrospective effect from assessment year 2005-06 and led to doubts on the impact of past claims and a possible risk of penalty, Jhunjhunwala pointed out.
The proposed amendment now explains that any deduction of surcharge or cess which was claimed and allowed will be considered as under-reported income for such previous year. And a penalty of 50% will apply.
It seems that pending claims in appeals may not be subject to penalty as they have not been allowed to the taxpayers yet, Jhunjhunwala explained.
However, there is a way out.
The proposed amendment allows the taxpayer to make an application and seek re-computation of the total income for the year when the surcharge or cess deduction was claimed.
Once the tax amount applicable after disallowing the cess and surcharge is paid, the assessee’s income would no longer be considered as under-reported, the proposed amendment said.