Know how Crypto, Bitcion, NFT and Virtual Digital Assets will be Taxed in India from 1 April 2022
30% Tax on Virtual Digital Asset
The Finance Minister announced ‘scheme of taxation’ for virtual digital assets. To start with, any income from transfer of any virtual digital asset shall now be taxed at the rate of 30%.
The Tax rates are very high compared to tax on other similar assets like gains from stocks and equity funds are taxed at 10-15% and non-equity options, property and gold are taxed at 20% or marginal rate. There is no doubt that the 30% tax proposed for income from crypto trading is very high.
Those in 30% or higher bracket, it may not make much difference, its impact will be felt by those who have enjoyed tax-free returns from virtual digital assets investments till now. Many Students and Low-income earners were paying zero or very low tax on crypto income and so they will be hit by the new tax
The Budget is treating crypto gains like income from gambling, horse racing and lotteries by taxing at a flat rate of 30% without any deduction of expenses and without set off against other income.
The gains will be taxed irrespective of the total income of the individual. Even if his income is below the basic exemption level or is eligible for a rebate, he must pay 30% tax
If the budget is passed, the new tax rate of 30% will come into effect from 1 April 2022. It is advisable to for investors to book profits before the end of the financial year i.e 31 March 2022.
What all Assets are covered in Virtual Digital Assets as per Income Tax ?
Virtual digital assets have been defined to include cryptocurrency, non fungible tokens. Other digital assets to be notified by the central government
The Budget 2022 has inserted Section 115BBI under the Income Tax Act to tax the income arising on account of virtual digital assets transactions at the rate of 30%. Further, the complete gains arising on account of transaction in virtual digital assets shall be subject to tax without any deduction for expenditure except the cost of acquisition.
Bill proposes to insert definition of the term “virtual digital asset” in Sub-section 47A of Section 2 to include:
– any information or code or number or token (not being Indian currency or foreign currency), generated through cryptographic means or otherwise, by whatever name called, providing a digital representation of value exchanged with or without consideration, with the promise or representation of having inherent value, or functions as a store of value or a unit of account including its use in any financial transaction or investment, but not limited to investment scheme; and can be transferred, stored or traded electronically;
– a non-fungible token or any other token of similar nature.
– the Central Government may notify any other virtual digital asset as virtual digital asset by way of notification in the Official Gazette.
While calculating income, only deduction for cost of acquisition shall be allowed and no other deduction of any expenditure or set off of any loss shall be allowed. Income would be calculated as sales consideration less cost of acquisition. No other expenses would be allowed as deduction other than cost of acquisition ..[Cost of acquisition has not been defined]
Loss of Virtual Digital Asset cannot be set off
The losses incurred from transfer of the virtual digital asset shall not be allowed as an adjustment against profit from any other head in current year. Also, the subject loss shall not be eligible to be carried forward to succeeding assessment years for set off.
Loss from any other source cannot be set off against income from virtual digital asset Further there are No Indexation Benefit if Virtual Digital Assets is hold for long run like in Gold or Property
TDS provision applicable for Virtual Digital Asset
In order to widen the tax base, it is proposed that payment to a resident on transfer of Virtual Digital Asset shall be liable for TDS @ 1%. TDS shall be deducted at the rate of 1% of the sum paid to a resident by any person responsible for paying by way of consideration for transfer of a virtual digital assets at the time of credit or payment of such sum by any mode, whichever is earlier. TDS provisions will be effective from July 1, 2022.
Introduction of TDS on digital asset will substantially increase transparency and help government track every transaction as buyers shall be liable to deduct taxes and report the transaction to the authorities.
No TDS is required in case the payer is a specified person and the aggregate value of payment to a resident is less than INR 50,000 during the FY. In other cases, if the payment is less than INR 10,000 during the financial year.”Specified person” means an individual/HUF whose total sales, gross receipts/turnover does not exceed INR 1 crore or INR 50 lakhs in case of business and profession respectively during immediately preceding Financial year and being an individual or a Hindu undivided family, not having anyhaving income under any head other than “Profits and gains of business or profession”.
In case the payment for such transfer is partly or fully in kind, before making the payment, the person shall ensure that the tax has been paid in respect of such consideration. In case TDS is deducted under this provision, no TDS / TCS is required under any other section.
Tax on gifting of virtual digital assets is taxable.
A gift of virtual digital assets is taxable. To cover tax on gifting of Virtual Digital Asset, any gift of Virtual Digital Asset above fair market value of INR 50,000 will be taxable in the hands of the recipient, other than specified exempt cases.
Assets gifted to specified relatives are tax free. But if cryptos and NFTS are gifted, the recipient will have to pay flat 30% tax irrespective of his income level. your relatives will not pay any tax if you gift them property, gold, stocks or mutual funds if it is covered under definition of relatives of Income Tax Act. But if you are planning to gift your cryptos to them, they will have to shell out 30% tax on the value of the gift.