Will gift cards, reward points attract TDS on virtual digital assets? IT Dept issues clarification

New Delhi: The new rules for tax deducted at source (TDS) on virtual digital assets (VDAs) and cryptocurrencies for transactions exceeding Rs 10,000 became effective today (July 1). With the new rules in place, investors will now have to face a 1 per cent TDS on the transfer of VDAs of more than Rs 10,000. The Finance Act 2022 enacted two TDS amendments, pertaining to Benefits/Perquisites and Virtual Digital Assets (VDAs), by inserting sections 194R and 194S into the Income-tax Act, 1961 ('the Act'). Both the rules became effective on July 1, 2022.

So far, there was no clarification on whether gift cards and mileage points will be categorised as VDAs. And whether they will attract the TDS or not. However, the Central Board of Direct Taxes (CBDT) has now come up with a clarification. (ALSO READ: Centre hikes import duties on gold! Yellow metal price rises; will rupee make a recovery?) 

In a notification issued late Thursday (June 30), CDBT said that gift cards, mileage points, reward points, and loyalty cards will not come under the definition of VDAs. The notice will make sure that buyers or sellers of such items don’t have to pay the TDS applicable on VDA transactions. (ALSO READ: Tablecloth for Rs 30,600: Netizens slam Priyanka Chopra's homeware brand) 

According to the official notification, VDAs include cryptocurrencies and non-fungible tokens (NFTs). The TDS on transactions of such assets was introduced in the Budget 2022-23.

The CBDT stated that the exemption will include gift cards or vouchers that can be used to obtain goods or services at a discount on goods, mileage points, reward points, or loyalty cards issued as part of an award, and any reward, benefit, loyalty, incentive, rebate, or promotional programme that can be used or redeemed to obtain goods or services at a discount on goods.