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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:

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:

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

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:

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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