Gift cards and mileage points given under promotional schemes are not virtual digital assets (VDAs) for the purpose of the new tax regime introduced in Finance Act 2022, the finance ministry said. The clarification aims to help those who hold these assets as well as professionals in complying with the new tax regime for virtual digital assets.
The government introduced a new tax regime for virtual digital assets in the Finance Act of 2022 that provided for a 30% tax without any set-off for losses and without deductions other than cost of purchase. The new regime also provided for a TDS of 1% tax on payment for transfer of virtual digital asset to a resident. The ministry said on Friday that certain benefits will be excluded from the definition of virtual digital assets.
As per this, gift card or vouchers, being a record that may be used to obtain goods or services or a discount on goods or services are not virtual digital assets. Also, mileage points, reward points or loyalty card, being a record given without direct monetary consideration under an award, reward, benefit, loyalty, incentive, rebate or promotional programme that are used or redeemed only to obtain goods or services or a discount on these items are not also VDAs. Subscription to websites or platforms or application are also not a virtual digital assets.
“This is a welcome clarification by the government since the definition of VDA is worded in an all-encompassing manner under the law. The unintended consequence of the same covered the online gaming coupons, codes, website subscriptions, gift coupons, credit card reward points, and mileage points under VDA category,” said Amit Maheshwari, tax partner at AKM Global, a tax and consulting firm. With the clarification, the ambiguity has been addressed and they do not have to bear the tax burden of 30%, which will create certainty in this space, said Maheshwari.
The government had clarified on how the TDS provision would apply on these assets. This is implemented under a new provision added to the Income Tax Act, section 194S. It insists that in certain cases, for example where the payment for the transfer of the digital asset is in kind, it has to be ensured that the tax is paid before making such payment in kind.
FAQs
Gift cards are digital assets preloaded with a specific amount of money that can be used as a convenient means of payment at their designated store. The demand for these digital assets is high, and people purchase them for various reasons.
What is considered digital asset? ›
The tax definition of a digital asset is any digital representation of value recorded on a cryptographically secured, distributed ledger (blockchain) or similar technology (Infrastructure Investment and Jobs Act).
What are virtual digital assets? ›
Virtual assets (crypto assets) refer to any digital representation of value that can be digitally traded, transferred or used for payment.
How does Steve report the value of his digital assets payment when filing his income tax return? ›
To report the value of digital asset payment on his income tax return, Steve should report the fair market value of the digital assets received. He should use the appropriate form, such as Schedule C, if he is a sole proprietor or single-member LLC. Accurate record-keeping is essential.
What is the difference between a gift card and a digital gift card? ›
Physical gift cards can be used in stores or online, while digital gift cards are designed to be used online or over the phone. Digital gift cards can be added to mobile wallets to make purchases easier and more secure.
Are digital gift cards real? ›
E-gift cards work in a similar way to traditional physical gift cards but without an actual card. The giver buys the card online and loads it with money. The recipient then receives the e-gift card via email. The recipient claims and activates the card.
Why does the IRS ask about digital assets? ›
If a taxpayer holds a digital asset as a capital asset and sells, exchanges, or transfers it during the taxable year, the taxpayer must use IRS Form 8949, Sales and Other Dispositions of Capital Assets, to calculate the gain or loss on the transaction, and then report that gain or loss on Schedule D (Form 1040), ...
Is a bank account a digital asset? ›
No, a bank account is not considered a digital asset by the IRS because it represents stored fiat currency. According to the IRS, digital assets must be 'recorded on a cryptographically secured digital ledger'.
What is the difference between a digital asset and a virtual asset? ›
Digital assets encompass various items in digital form, including documents, media, and cryptocurrencies, signifying ownership or value. In contrast, virtual assets specifically denote digital representations of real-world goods within virtual platforms or environments.
What are examples of virtual assets? ›
What Are Examples of Virtual Assets? A virtual asset is a digital representation of value. Examples of such assets include cryptocurrencies, non-fungible tokens (NFTs), gaming tokens, and governance tokens. Accordingly, virtual assets can be traded, transferred, and used to make payments.
Digital assets include photos, manuscripts, documents, data, cryptocurrencies, and much more. Digital assets are increasingly important because they are becoming more a part of our professional and personal lives while continuing to be essential for businesses and governments.
What is an example of digital assets in banking? ›
8 Examples of Digital Asset on Blockchain
- Cryptocurrencies. ...
- Tokenized Securities. ...
- Digital Collectibles (NFTs) ...
- Decentralized Finance (DeFi) Assets. ...
- Tokenized Commodities. ...
- Intellectual Property Rights. ...
- Tokenized Real Estate. ...
- Carbon Credits and Environmental Assets.
Gift cards are digital assets, loaded with a specific amount of money and are created to serve as a convenient payment method for a specific brand, restaurant, or store.
How does the IRS know if I made money on Bitcoin? ›
More recently crypto exchanges must issue 1099-K and 1099-B forms if you have more than $20,000 in proceeds and 200 or more transactions on an exchange the exchange needs to submit that information to the IRS.
How does the IRS know about cash income? ›
Various third parties, such as employers, cash apps, and financial institutions, are required by law to report certain types of income to the IRS using forms like 1099s, W2s. These forms provide a clear paper trail of income received.
Is a gift card a digital product? ›
Ebooks, gift cards, and videos all fall into the category of digital goods: products that exist primarily or entirely digitally.
Are gift cards current assets? ›
While you should always confirm with your accountant, generally speaking, Gift Card and Gift Certificate programs should be handled as an Other Current Liability on your Balance Sheet.
What is a gift card classified as? ›
Gift cards provide a great revenue stream – they bring in cash immediately and are minimal COGS. Gift card purchases are generally classified as a deferred revenue liability. Here's what you need to know about properly recognizing them.
Are gift cards electronic money? ›
In general, a shopping centre gift card is not legally classified as e-money.
