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Budget 2022: Taxes on Cryptocurrency, NFT & other Virtual Digital Assets

Budget 2022: Taxes on Cryptocurrency, NFT & other Virtual Digital Assets

The Budget 2022 finally brings in clarity on the taxation of Virtual Digital Assets (VDA) such as Crypto, NFT, etc.

FM Nirmala Sitharaman also announced – RBI is also going to launch its own digital currency called ‘Digital Rupee‘ by 2023.

What is a Virtual Digital Asset?

Virtual Digital Assets include Cryptocurrencies, Non-Fungible tokens i.e. NFT, or any other digital asset specified by the Central government.

What is the Tax Treatment?

All Virtual Digital Assets will be taxed as the following:

  • Income Tax as per section 115BBH applicable from 1st April 2022 onwards:
    • 30% Tax rate
    • Treatment of loss
      • Losses transfer cannot be set off against any other income
      • Losses cannot be carried forward
      • Loss under any other income head cannot be set off against VDA income
    • Gift is taxable in the hands of the reciever
    • Cannot claim expense or allowance in relation to the transfer of VDA. Expenses such as electricity, internet, depreciation, etc which are allowed for trading cannot be claimed when trading crypto.
    • Taxpayer can claim the cost of acquisition i.e purchase price from the sales consideration i.e. selling price.
      Taxable transfer of VDA = Selling Price – Purchase Price
  • TDS u/s Section 194S effective from 1st July 2022 onwards
    • TDS should be deducted at 1% on payment if transfer amount exceeds INR 50,000 (Individual/HUF payer having income from B&P) or INR 10,000 otherwise.

What will be Income Head?

There is still confusion to classify Income from transfer of crypto, NFTs, etc under the relevant Income head.

Under one school of thought, it should be reported under the ‘Income from Other Sources’ since:

  • a special section 115BBH under the Income Tax Act is introduced. This section is on lines of lottery, betting and gambling income u/s 115BB, these are taxed under the head IFOS.
  • Crypto, NFTs and other VDAs are not included in the defination of capital assets u/s 2(14).

On the other end, another school of thought suggests that it should be included under the head ‘Income from Capital Gains’ because:

  • definition of capital asset includes “any other capital asset”, which may/may not include crypto, NFTs, etc.
  • the term “transfer of assets” is usually referred in relation to capital assets
  • the term “cost of acquisition” is often used when calcualting income under the head ‘Income from Capital Gains’

Let’s hold up for the circular from the Income Tax Department for the final word.

What about different VDA activities and transactions?

Profit/Loss from the transfer is a small subset of crypto, NFT, and other digital transfers.

Other activities with Virtual Digital Assets encompass:

  • Crypto Derivatives trades eg: Bitcoin Options, Ethereum Options, Bitcoin Futures, etc. Since derivatives trading doesnot include transfer of VDA, it cannot be classfied as “trasfer of asset.
  • Other Incomes from Crypto earned such as Reward Income from Crypto staking, etc; it is usually earned from pledging of cryptos and therefore no trasnfer is involved.
  • Transfer of crypto within different wallets of the same trader; since there is no change in ownership.
  • Crypto and NFT trades/transfers are not restrcited to a specific country, therefore clarrification is awaited on the compliance requirements for TDS deduction.
  • One of the fundamentals of trading crypto does not necessarily reveal the identity of the counterparties, deducting and depositing TDS may be a challenge.

These activities cannot be explicitly classified as “Transfer of VDA”, and hence need clarification on their tax treatment.

After almost a year full of uncertainty and confusion, today’s budget addresses these concerns to an extent. However, with the universe of crypto, NFT, and yet to arrive digital assets, there is a long way to go.

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Got Questions? Ask Away!

  1. @Latesh_Bayad, there are two schools of thought for taxes on crypto, some believe it should be taxed as capital gains and others believe it should be considered as income from other sources.

    If the cryptocurrency is held as an Investment and being exchanged for Fiat Money it may be treated as capital gains.
    There are some articles which you might find useful

  2. Hey @Shama,

    The taxability of Cryptocurrencies arises under Income from Capital Gains if it is held as investment or trading. The cryptocurrency shall be considered as a Capital Asset and the taxability shall arise in the hands of person owning the same.
    In Your case, since, Person A is owner of the cryptocurrencies; so any gains arising from sale of cryptocurrencies shall be taxable in the hands of Person A as the data/KYC registered with exchange is that of Person A. It shall make no difference if the proceeds are received in Joint Savings A/c which is held along with Person B.
    Person B shall ignore the same proceeds in his ITR as Person A is paying the taxes in his ITR.

    Hope it helps!

  3. Avatar for Nireka Nireka says:

    Budget 2022 brings taxes on Crypto, NFTs and other Virtual Digital Assets

  4. Hi @Murali_Krishnan_S, if you are receiving profits in India then you will be taxed at 30% + 4% HEC and if you are receiving profits outside of India, then they are not taxable in India. You can also go through the blog attached below which will help you how the new budget affects you crypto trading and profits. Let me know if you need any further clarification. :blush:

  5. Irrespective of my tax slab ; crypto is taxed @30% . ?

    I mean if my income is zero and i made profit from crypto trading Rs. 1 lakh ; i pay tax 30,000/= ? Or i’ll get STGC excemption of 1 lakh ?

    Or crypto is taxed 30% based on my tax slab ?

    In this case ; if my income is 5 lakhs including 1 lakh income from crypto trading ; i declare crypto income in first slab which is taxfree upto 2.50 lakh !

    What is the rule ?

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