Budget 2023: Penalty On Failure To Pay Tax On Digital Assets
Consideration in cash or kind, it's the duty of taxpayer to ensure that tax on digital assets are paid as per Finance Bill, 2023.
Any failure of the buyer to withhold tax on exchange of one virtual digital asset for another can now attract penalty according to the latest finance bill. It shall be the responsibility of the person who is responsible for the payment of consideration to ensure that the tax has been paid.
Present laws mandate a tax of 1% on transfer of virtual digital asset which includes cryptocurrencies and non-fungible tokens where the value of asset exceeds Rs 10,000.
The person who defaults, according to the law, shall be liable to pay a penalty which shall be a sum equal to the amount of tax which such person failed to deduct or pay.
The default can also invite prosecution if such default was intentional or without any reasonable explanation. An imprisonment up to six months along with a fine at the rate of 15% per annum on such tax can also be levied.
According to the memorandum, In the last budget, provisions were put in place to ensure that transfer of digital asset, either for cash or in kind would attract TDS.
Central Board of Direct Taxes in 2022 had also clarified the position and stated that TDS shall be applicable for transfer of virtual digital assets regardless of the nature of consideration.
The provision, however, did not clarify whether such a shortcoming would attract penalty under the Act. The present provisions clarify the responsibility of taxpayer to ensure that tax has been paid on barter of digital assets and provides that non-payment of tax under such circumstances would invite penalty and prosecution under the Act.
This is however merely a clarificatory provision, according to Sandeep Jhunjhunwala, partner at Nangia Andersen LLP.
According to him, the provisions always mandated TDS for transfer of virtual digital asset, both in cash and kind. However, there were certain procedural issues that prevented taxpayers from appropriately calculating the tax on account of difficulties in calculation of the exact consideration.
The present bill seeks to amend the penalty and prosecution provisions for TDS defaults to provide for failure of the payer to ensure payment of appropriate taxes in such "in kind" cases. Penal provisions entail a penalty equal to the amount of TDS deductible and prosecution with rigorous imprisonment for a term not less than three months and which may extend to seven years with a fine.Sandeep Jhunjhunwala,Partner, Nangia Andersen LLP
The changes would come to effect on July 1.