In Budget 2022, the government has officially termed digital assets including crypto assets under ‘Virtual Digital Assets’ (VDA’s) comprising of all the cryptos such as Bitcoin, Ethereum etc, and other digital assets such as Non-fungible tokens (NFTs).
Proposed Tax Regime:
i) Income from transfer of any VDA’s to be taxed @ 30% w.e.f 1st April 2022;
ii) TDS of 1% on payments made for transfer of VDA’s, above a certain monetary threshold w.e.f 1st July 2022;
iii) The gift of VDA’s to be taxed in the hands of the recipient.
Rate of Tax: Flat 30% Tax is payable on any profits on Transfer of VDA’s regardless of:
i) Nature of Holding i.e. No distinction between short-term and long-term gains;
ii) Nature of Income (Business or Capital Gains of Income from Other Sources);
iii) Tax Slab applicable to the assessee.
Point of Taxation: Any income arising on VDA transactions shall be taxed only when the VDA’s are sold for profit & the sale proceeds are transferred to the bank account i.e. if the assessee continues to hold the asset, nothing is taxable on such unrealized gains.
Taxation on any VDA Gifts: In case of any gift is made in form of VDA’s The recipient is liable to Pay tax at flat rate of 30% (plus surcharge & cess).
Deductions, Set-off and Carry Forward:
i) Except Cost of Acquisition, no other deduction is allowed as expenditure for VDA’s.
ii) Loss from the transfer of VDA’s, can’t be set off against any other income.
iii) Loss from the transfer of VDA’s can’t be carry forward to the next financial year.
Taxation on Current Holdings and Previous earnings:
The previous gains will also be taxed if the same are released after 31st March 22 i.e. if current holdings are sold on or before March 31, 22, the current system of taxation will apply on VDA gains. However, if sold after 31st March 22, such gains will be subjected to a tax at 30% on gains arising from such transfers.
Example: For Transactions Undertaken During Financial Year 2022-23
Transaction 1: Bitcoin bought for Rs 5 Lakh and sold for Rs 6 Lakhs
Transaction 2: Ethereum bought for Rs 2 Lakhs and sold for Rs 1.5 Lakhs
The Net income from the above transactions shall be Rs 50,000 [Rs 1 lakhs (income from Transaction 1) – less 50,000 (loss in Transaction 2)].
The Tax payable on VDA’s income: 30% of Rs 50,000 = Rs 15,000 (plus surcharge & cess).
If in any F.Y, The net income from crypto transfers is NIL, No Tax is payable.
CA Milind Wadhwani | DISA(ICAI), FAFD(ICAI), Research (Ph.D.) Scholar | Mobile +91 9826273333 | Mail ID: – MILIND.WADHWANI20@GMAIL.COM