The emergence of different cryptocurrencies for trading and higher use of electric vehicles, which are more environment friendly, are two of the major technology-based changes in recent years. While the new era of technology seems nothing less than awe-inspiring, there are significant tax regulations which may be associated with higher use of these technological advents.
Current Electric Vehicle (EV) strategy and taxation
The push towards a greener future and comparatively lower cost of running and maintenance has led to a surge in the usage of EVs, which has seen an increase on a year-on-year basis. Governments worldwide are incentivizing this shift through various tax benefits and deductions. Many countries offer tax rebates for the purchase of new EVs, reducing the upfront cost and encouraging adoption as compared to higher pollution-emitting vehicles. Reduced registration fees and tax exemptions for EVs are becoming more common, acknowledging their environmental benefits.
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The Indian government also introduced a new Section 80EEB in 2019 “with a view to improve the environment and to reduce vehicular pollution.”. This provision allows a maximum deduction of Rs 1.5 lakh in a financial year for interest paid on a loan taken for the purchase of EV, provided the loan has been sanctioned between 1 April 2019 and 31 March 2023. This is a deduction from gross total income which can be claimed by individuals taking EV loans and helps reduce their tax liability provided the conditions specified in the provisions are satisfied.
Current income tax rules on Cryptocurrency and Non-Fungible Tokens (NFTs)
Though cryptocurrencies have been around for quite some time, their popularity and usage as a mode of payment and trading for the purpose of earning income has seen a significant upsurge in the last few years. This has prompted governments around the world to introduce specific tax regulations for cryptocurrencies to harness additional tax revenue.India, too, made changes to the income tax provisions to recognise these Virtual Digital Assets (VDA). The Indian government introduced a new framework in Budget 2022 to tax and impose TDS on transactions related to VDA and to clearly define what really constitutes a VDA for this purpose.
Effective April 1, 2022, income from sale of VDAs is taxed at the rate of 30% (plus applicable surcharge and cess). Unlike the regular capital gains tax framework, the taxation rules for VDAs does not permit a deduction of any expense (except cost) from the sale value to calculate the income tax payable. This means that the taxpayer needs to pay 30% tax (plus applicable surcharge and cess) on the difference between the sale value and cost of acquisition without taking into account any other expense or deduction.
Moreover, any loss from the sale of a VDA is not allowed to be set-off from any other income (including income from a profitable VDA transaction). Loss is also not allowed to be carried forward to future years. Even if a taxpayer’s total income including VDA income is less than tax exemption limit, income from VDA is subject to tax at 30% without allowing benefit of income tax slabs or any other tax saving investments made by the taxpayer.
The government also introduced TDS rules, which require the buyer of a VDA to deduct TDS at the rate of 1% on the sum payable as consideration for buying the VDA. However, such TDS is required to be deducted if total value of consideration payable by a person not having business/ professional income exceeds Rs 50,000 in a financial year.
Thus, following the global trend, India too has incentivised the use of EVs by providing tax benefits. Further, the Indian government also has taken steps to get additional tax revenue by introducing the VDA tax rules.
What Budget 2025 could bring
Taxpayers expect that the tax incentive available on buying an EV is extended by removing the sunset clause of the last date of loan sanction so that new buyers are also incentivised to shift towards a greener future. Also, since the cost of buying an EV is higher as compared to petrol and diesel vehicles, a higher deduction for interest paid on a car loan may be more prudent and welcomed by the taxpayers.
Similarly, taxpayers expect that some sort of parity is brought in the VDA taxation framework vis-Ã -vis capital gains taxation in the form of the differential tax rate for long term and short term holdings and allowing set-off of losses against profitable VDA transactions.
One may say that provisions introduced in 2022 have somewhat made VDAs less appealing to taxpayers due to factors such as: (i) Bar on set off and carry forward of losses; (ii) Single rate of tax regardless of how long the VDA is held and (iii) Non-availability of the basic tax exemption limit for capital gains on VDAs. Hence, it would be a welcome move if some concessions are provided for VDAs in the upcoming budget.
The government may also clarify perquisite taxation on EVs when the vehicle is provided by the employer for personal and official usage of the employees. At present, the provisions related to perquisite taxation do not explicitly cover EVs resulting in ambiguity about the value on which tax is to be deducted by the employer.
(The article is written by Shalini Jain, Tax Partner, EY India. Akshay Sharma, Senior Tax professional also contributed to the article)
