The government is working on a set of rules that would be notified soon, two senior officials privy to the deliberations told ET.
“These will not be covered under the definition of VDAs, we will clarify…,” said one of the officials quoted above. A notification to this effect would be issued by the apex direct taxes body, the Central Board of Direct Taxes, shortly.
The current definition of VDAs covers items generated through cryptographic means “or otherwise”, making it wide in its application.
Online gaming companies, payment systems, credit or debit cards, and ecommerce apps among others give incentives in the form of reward points on purchases made through them.
These reward points are usually stored digitally in the wallet on the platform.
New Tax Regime
There are apprehensions that given the wide definition of VDAs, these could be interpreted to include loyalty points, airline miles, discount coupons, and digital bullion among others having virtual traits.
New Delhi rolled out a new tax regime applicable for cryptocurrencies from April 1 this year. Income from transactions in crypto assets now attracts a 30% tax and 1% tax is deducted at source (TDS) on transactions in such asset classes above a certain threshold.
Another official said the provision has a clause for the removal of difficulties and that can be used to issue a clarification if needed.
Tax experts say there was a need to clear the air on these issues. “As the current definition of ‘Virtual Digital Assets’ is very wide, it is imperative for CBDT to clarify some obvious exclusions like reward points on credit cards, airline miles, gift vouchers, online mutual fund transactions, etc,” said Sudhir Kapadia, National Tax Leader, EY.
Kapadia also said the provision to notify digital assets as nonfungible tokens (NFT) should be used very sparingly as NFT is merely a title record of ownership of an underlying asset such as a music rendition or painting on the blockchain without it being an independent asset class.