No 1% TDS For Website Subscriptions, Online Reward Points! Check What’s Included In New Taxation For Digital Products

The implementation of taxation rules for virtual digital assets or VDAs has been surrounded by confusion.

People have been led to think that several online transactions, which had nothing to do with crypto or blockchains, may also be taxed as VDAs.

The Government has now set the record straight with a new clarification that excludes certain transactions from the definition of VDA.  

Items which are not VDAs

The Central Board of Direct Taxes (CBDT) has excluded the following items from the definition of virtual digital assets:

• Gift cards or vouchers for purchase of goods or services. Gifts cards to avail discount on goods and services have also been included.  
• Mileage points, reward points or loyalty cards given without direct monetary consideration under an award, reward, benefit, loyalty, incentive, rebate or promotional program for the purchase of or discount on goods or services have been excluded.
• Subscriptions to websites or platforms or applications have been excluded

Taxation on NFTs

The 30% tax on income and 1% TDS rules will apply on Non-Fungible Tokens (NFTs).

However, those NFTs would not be considered as VDAs for taxation the transfer of which results in the transfer of ownership of underlying tangible assets which is legally enforceable. 

This means that NFTs of tangible assets, like land records, would not be considered virtual digital assets for taxation purposes. 

What this means

Sandeep Jhunjhunwala, Partner, Nangia Andersen LLP, said that the Government’s notification to exclude NFTs which derive value from underlying tangible asset and transaction that involves the transfer of said asset is a welcome move. 

Hence, not all NFTs would be subject to VDA tax provisions.