“Navigate the taxation landscape of Crypto and NFTs in India. Understand the legal recognition, tax implications, including trading, gifting, and mining of Virtual Digital Assets. Stay informed to comply with the updated regulations.”
Cryptocurrency and Non-Fungible Tokens are now given legal recognition in India. Section 2(47A) has been inserted in the Income Tax Act, 1961 which refers the cryptocurrency and NFTs as Virtual Digital Assets (VDAs). This section has widely covered the definition of VDAs.
What is a Virtual Digital Asset ?
VDA means any information or code or number or token, other than any fiat currency, generated through any cryptographic means. In short, it means all types of crypto assets, including NFTs, tokens, and cryptocurrencies but it doesn’t not include gift cards or vouchers.
Taxation of VDAs:
Section 115BBH was inserted to deal with taxability of VDAs.
As per this section:
- Profits earned by trading in cryptocurrency is taxable at 30%.
- As per Section 194S, TDS shall be deducted at 1% if the value of transactions exceeds Rs. 50,000 in a financial year.
The buyer shall be responsible to deduct TDS and deposit it with the Government or the trading platform shall be responsible to collect the TDS. - No setoff of losses is available in case of trading in VDAs.
- There’s no provision of deduction of costs or expenditure (other than cost of acquisition).
Gifting VDAs:
Gifted VDAs shall be taxable in the hands of receiver if the value of VDAs exceeds Rs. 50,000 [Section 56(2)(x)].
Mining of cryptocurrencies:
Mining refers to the the process by which transactions are validated digitally on the network and added to the blockchain ledger.
Mining of cryptocurrencies is taxable either as:
- Income from Business- if mining is done on a regular basis as a main business activity.
- Income from Other Sources- if mining is done once in a while or eventually.
Disclosure of VDAs:
Amendment has been made in the Schedule III of the Companies Act. Now, every company has to disclose its gains and losses in virtual currencies. Also, the value of VDAs as on the date of Balance Sheet shall be disclosed.
Illustration:
Mr. A purchased Dogecoin worth Rs. 50,000 and Ethereum worth Rs. 20,000. He sold Dogecoin for Rs. 70,000 and Ethereum for Rs. 10,000 to Mr. B.
Mr. B has to pay Rs. 80,000 to Mr. A after deducting 1% TDS (i.e. 80000-800= 79200).
Mr. A has to pay 30% of 20,000 for profit made on sale of Dogecoin and no deduction can be availed for loss incurred in sale of Ethereum.
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