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The Finance Minister, while delivering her Budget Speech on Part B- Budget 2022-2023 on February 1, 2022, in the Lok Sabha stated in clause no. 131 as under:

Scheme for taxation of virtual digital assets Assessment Year 2023-24

“131. There has been a phenomenal increase in transactions in virtual digital assets. The magnitude and frequency of these transactions have made it imperative to provide for a specific tax regime. Accordingly, for the taxation of virtual digital assets, I propose to provide that any income from transfer of any virtual digital asset shall be taxed at the rate of 30 per cent.

  • No deduction in respect of any expenditure or allowance shall be allowed while computing such income except cost of acquisition. Further, loss from transfer of virtual digital asset cannot be set off against any other income.
  • Further, in order to capture the transaction details, I also propose to provide for TDS on payment made in relation to transfer of virtual digital asset at the rate of 1 per cent of such consideration above a monetary threshold.
  • Gift of virtual digital asset is also proposed to be taxed in the hands of the recipient.”

Further, in order to provide for taxing the gifting of virtual digital assets, it is also proposed to amend Explanation to clause (x) of sub-section (2) of section 56 of the Act to inter-alia, provide that for the purpose of the said clause, the expression “property” shall have the meaning assigned to it in Explanation to clause (vii) and shall include virtual digital asset.

In order to put the proposal in effect the critical and the important words used in the scheme have been defined as under:

Section (47A) “Virtual Digital Asset” means-

a) 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;

b) a non-fungible token or any other token of similar nature, by whatever name called;

c) any other digital asset, as the Central Government may, by notification in the Official Gazette specify:

Provided that the Central Government may, by notification in the Official Gazette, exclude any digital asset from the definition of virtual digital asset subject to such conditions as may be specified therein.

Explanation.-For the purposes of this clause,-

(a) “non-fungible token” means such digital asset as the Central Government may, by notification in the Official Gazette, specify;

(b) the expressions “currency”, “foreign currency” and “Indian currency” shall have the same meanings as respectively assigned to them in clauses (h), (m) and (q) of section 2 of the Foreign Exchange Management Act, 1999 (42 of 1999.).]

Before we delve further into the topic it would be worthwhile to simplify the meaning of some of the terms which form core of the subject.

Virtual Digital Asset

The government has so far not issued detailed clarifications/classification regarding what would constitute virtual digital assets (VDAs). By definition,  any information or code or number or token generated in digital form through cryptographic means will qualify as Virtual Digital Asset and includes Non-fungible tokens (NFTs). Here Virtual means “Not Real”, an asset which we can’t touch or feel. Digital means any information or code or number or token generated electronically.

Cryptography is associated with the process of converting ordinary plain text into unintelligible text and vice-versa. It is a method of storing and transmitting data in a particular form so that only those for whom it is intended can read and process it. Cryptography not only protects data from theft or alteration, but can also be used for user authentication.

Let us understand the above concepts with some easy to understand examples.

Let us say, we have booked a ticket for a certain flight from a certain city. On payment,  the carrier gives us a paper ticket mentioning the Seat No say B-10, name of the passenger, from which city to which city, date of travelling, time of boarding, amount paid etc.  Here, the seat no. B-10 is a physical asset made of some actual solid materials which we can touch and feel. The particulars of this seat are represented by the paper ticket, which again is a physical asset. Anyone who sees this ticket would know all the details of the journey and our privacy is no secret now. At this point of time we decide to have full secrecy of this journey and therefore request the carrier to hide all the details on the paper ticket such that they are discernible to us only. The carrier obliges and by using a Cryptography software he converts all these details into an Electronic Code which is non readable by any human eye. Only the software which encrypted the details can decrypt the details. Such code is communicated to us  and store it safely. This particular code has a definite value which one can exchange with other persons for a certain value. This electronic code is called non-fungible token which means it is unique code which contain all the details of the journey and nobody can duplicate it and sell it by fraud, misrepresentation etc.

Therefore, Non-fungible tokens (NFTs) are cryptographic assets on a blockchain with unique identification codes and metadata that distinguish them from each other. If the carrier creates such NFTS say 100, for all of the seats in the aircraft and thereafter attaches/ties all of them together in some particular sequence by use of some hashing system then the chain of electronic codes so formed is called a Blockchain

Fungibility is an economics term that describes the interchangeability of certain goods. For example, a barrel of oil is fungible (interchangeable/indistinguishable) from any other barrel of oil. Non-fungible is to render such items unique or distinguishable. For instance, if we were to take a Rupee Note  and have it drawn on and signed by a famous celebrity, it become unique – unlike all other Rupee Notes, and perhaps worth more than its face value.

Crypto NFTs make each token unique and irreplaceable, thereby making it impossible for one non-fungible token to be equal to another. They are digital representations of assets and have been likened to digital passports because each token contains a unique, non-transferable identity to distinguish it from other tokens.

Just like Bitcoin, NFTs also contain ownership details for easy identification and transfer between token holders. Owners can also add extra data or attributes pertaining to the asset in NFTs. Non-fungible tokens are also excellent for identity management.

Non-fungible tokens, which use blockchain technology just like cryptocurrency, are generally secure. The distributed nature of blockchain makes NFTs difficult (although not impossible) to hack. One security risk for NFTs is that we could lose access to our non-fungible token if the platform hosting the NFT goes out of business.


  • NFTs (non-fungible tokens) are unique cryptographic tokens that exist on a blockchain and cannot be replicated.
  • NFTs can represent real-world items like artwork and real estate.
  • “Tokenizing” these real-world tangible assets makes buying, selling, and trading them more efficient while reducing the probability of fraud.
  • NFTs can also function to represent individuals’ identities, property rights, and more.

Cryptocurrencies and non-fungible tokens (NFTs) are presently unregulated in India. While the Reserve Bank of India (RBI) had sought to ban cryptocurrencies in 2018, the Supreme Court quashed the attempted ban leaving cryptocurrencies in regulatory limbo – neither illegal nor, strictly speaking, legal.

While the Government continues to contemplate its stance on cryptocurrencies and NFTs, it has, in the interim, introduced a new tax regime aimed at taxing gains and, or, income from virtual digital assets (VDAs) – i.e. cryptocurrencies, NFTs and similar tokens, and other assets that the Government may specify. As a result, there is now a tax of 30% plus surcharge and cess on the transfer of any VDA such as Bitcoin or Ethereum under the Income Tax Act, 1961. However, the legal position of cryptocurrencies is that they are illegal in their form & trade in India..

The Income Tax Act was amended with effect from April 1, 2022 to provide for the taxation of gains and, or, income derived from Virtual Digital Assets (VDAs). Under the Income Tax Act.

Classification of Virtual Digital Asset

The Govt. did not clarify if the virtual digital assets will be a currency, commodity, or security. In the absence of any such clarification, the virtual digital asset should be classified as a capital asset.

Therefore, cryptocurrencies or NFTs should be deemed capital assets, if purchased for investments by the taxpayers. Therefore, any gain arising on the transfer of such assets shall be taxable as capital gains. However, if the transactions in such assets are substantial and frequent, it should be held that the taxpayer is trading in such assets. In this case, income from the sale of such assets should be taxable as business income.

Tax on income from virtual digital asset. Section 115BBH

1) Where the total income of an assessee includes any income from the transfer of any virtual digital asset, notwithstanding anything contained in any other provision of this Act, the income-tax payable shall be the aggregate of,-

  • the amount of income-tax calculated on the income from transfer of such virtual digital asset at the rate of thirty per cent.; and
  • the amount of income-tax with which the assessee would have been chargeable, had the total income of the assessee been reduced by the income referred to in clause (a).

2) Notwithstanding anything contained in any other provision of this Act,-

(a) no deduction in respect of any expenditure (other than cost of acquisition, if any) or allowance or set off of any loss shall be allowed to the assessee under any provision of this Act in computing the income referred to in clause (a) of sub-section (1); and

(b) no set off of loss from transfer of the virtual digital asset computed under clause (a) of sub-section (1) shall be allowed against income computed under any provision of this Act to the assessee and such loss shall not be allowed to be carried forward to succeeding assessment years.

3) For the purposes of this section, the word “transfer” as defined in clause (47) of section 2, shall apply to any virtual digital asset, whether capital asset or not.

An analysis of the above definitions/provisions would lead us to the following conclusions;

1. The income arising on transactions relating to VDA shall be taxed only at the time of transfer of such VDA i.e. if a person continues to hold the asset, the holding is not taxable on such unrealized gains.

2. The tax will be levied on the difference between the cost of the acquisition of the VDA and the transfer price of the VDA. The transfer price will be deemed to be the cost of acquisition for the transferee.

3. Cost of acquisition:

a) In case the virtual digital assets are purchased on the valuation date from a registered dealer, the invoice value of such asset shall be its fair market value.

b) In case the virtual digital assets are received by any other mode (e.,mining, etc.) the fair market value of such asset may be estimated to be the price that it would fetch if sold in the open market on the valuation date.

c) Detailed guidelines for valuation are not yet prescribed when the VDAs are received by gift or without any cost.

4. No deduction shall be allowed for any expenditure or allowance while computing the VDA-income, except the cost of acquisition. Thus, the following items shall be ignored while computing the capital gains from the transfer of virtual digital assets:

a. Expenditure incurred in connection with the transfer of a virtual digital asset;

b. Cost of improvement relating to a virtual digital asset;

c. Indexation of cost of acquisition of a virtual digital asset;

d. Exemption under Section 54F.(Sec 115BH(2)(a))

5. Losses incurred on transfer of VDA of one kind will not be allowed to be set off against the gains from any transaction involving another VDA while computing tax. Thus, where a taxpayer earns a gain say INR 100000 on Bitcoin (VDA-1) and incurs a loss of INR 50000 on Ethereum(VDA-2) during the same year, the loss of INR 50000 will be ignored, and the taxpayer will be liable to pay tax on INR 100000. Not only this, the loss of VDA-2 Rs. 50000/- will not be permitted to be carried forward and set off in next assessment year. Even if an individual has zero normal taxable income, he will have to pay the at 30 percent on VDA- income without any deduction except the cost of acquiring the VDA. Other deductions allowed under Sec 80C, 80D, and the likes are also not permitted from VDA-income.

6. Income on transfer of VDA shall be taxed under this section only i.e. , Section 115BBH whether it is in the form of capital gain or in the form of business income. Also, the difference between long term capital gain and short term capital gain has been obliterated too. Deductions or exemption available for long term capital gain on investments in prescribed assets, basic exemption and reduced rate of tax etc. shall not be available.

7. The CBDT has stated that there will not be any VDA-tax on certain assets which include gift cards or vouchers that can be redeemed for goods or services or a discount on goods, mileage points, reward points, or loyalty cards under an award, as well as reward, benefit, loyalty, incentive, rebate, or promotional programmes that can be redeemed for goods or services or a discount on goods. The exemption will also include subscription to a website, OTT platform, or Mobile Application, e-Commerce platforms.


8. In a notification issued on June 30, 22 the Central Board of Direct Taxes (CBDT) said that only those NFT trades that do not include a parallel sale of an underlying physical asset will attract the tax rates specified for virtual digital assets (VDAs).

“If an NFT is sold, and legal ownership of the underlying asset is also transferred as per due process, tax rates would be determined as per the underlying asset and not as per the rates applicable to VDAs,”

For example, if an NFT of a piece of Classic Art is traded, and the actual piece of Classic Art is also exchanged as part of the transaction, then the sale of the Classic Art will not attract the same taxes as those applied to virtual digital assets (VDAs).

This means that VDA shall not include an NFT whose transfer results in transfer of ownership of underlying tangible assets and such transfer is legally enforceable.”

9. Infrastructure cost incurred in the mining of virtual digital assets including cryptocurrencies will not be allowed as deduction. Mining require huge investment in computer and also require good amount of electricity continuously. However, the cost of the computer or its depreciation and the amount of electricity bill is not allowed as a business expenditure from the income.

10. Gifting virtual digital assets will be taxed in the hands of the recipient under the head “Income from other sources” section 56(2)(x). If the gift is from relatives then there will not be any tax but, if the gift is from non-relatives whose FMV exceed Rs. 50000/- then the same will be taxed as per the provisions of section 56(2)(x). If the donee who received such gift later, transfer these gifted VDAs for valuable consideration then the income arising therefrom will be taxed u/s 115BBH @30% as applicable to the VDA-income.

11. There is no tax on purchase of VDA Tokens but we have to pay tax when we sell them.

12. In order to attract VDA-tax the following conditions must exists i.e. condition of disposal.

The following transactions are treated as Disposals of VDAs and attract VDA-tax.

Selling crypto for INR or another fiat currency.
Trading crypto for


Another Crypto, including Stablecoins.
Spending crypto on Goods and Services.
Gifting crypto Income occurs only when the gifted crypto are sold

13. The following transactions in VDA are Tax-exempt: 

1) Buying Crypto with fiat currency (say INR)

2) Holding Crypto- No Wealth tax

3) Moving crypto between wallets

4) Gifting Crypto to specified relatives

5) Gifting Crypto of value less than Rs. 50000/-

6) Donating Crypto to Charity (Deduction u/s 80G ?)

14. Tax on lost or stolen cryptoVDA: Any deduction from the income ?? No guidelines have been provided by the CBDT

15. Scope of Section 56(2)(x): Income from other sources

Section 56(2)(x) applies when any person receives any benefit whose value exceeds Rs. 50,000. The Finance Act, 2022 included virtual digital assets within the scope of movable assets. Thus, after the amendment, Section 56(2)(x) shall apply to (i)  Virtual Digital Assets also.

Thus, if a person receives a virtual digital asset without consideration (gift) or for inadequate consideration and the value of such benefit exceeds Rs. 50,000, it shall be taxable in the hands of the recipient under Section 56(2)(x) as income from other sources and not u/s 115BH(1). The later section of tax @ 30% shall be applicable only when the assessee transfer the VDA received in gift.

Example 1 on Taxation of Virtual Digital Assets

Example 2 on Taxation of Virtual Digital Assets

Example 3 on Taxation of Virtual Digital Assets

The CBDT has not yet issued detailed guidelines on the method of computation of income from transfer of Virtual Digital Assets (Crypto Assets). The above calculations have been made just on the basis of what had been stated by the FM in the Budget Speech -2022 and clarification issued in the parliament during the course of debate on the Finance Bill-2022. These are liable to change if and when detailed guidelines are issued on the subject. Therefore this presentation may be treated only as a draft model of the working of the section.

Disclaimer: This write up is strictly for personal use and also for academic purposes only. The Author incurs no liability for any statement of error or omissions in this write up. No part of this write up can be copied and distributed except with the permission on the author in writing.


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  1. FAHAD HUSSAIN says:

    Dear sir,
    I want clarification regarding whether rebate u/s 87A of Rs. 25000 under the new regime comes under the purview of tax on capital gains from the transfer of VDA.

  2. Kalyan Singh says:

    Dear Sir,
    As mentioned in this article that Losses incurred on transfer of VDA of one kind will not be allowed to be set off against the gains from any transaction involving another VDA while computing tax.
    It means Losses incurred on transfer of VDA of one kind can be set off against the gains from any transaction involving same VDA
    For Example: taxpayer earns a gain say INR 100000 on Bitcoin (VDA-1) and on next transaction incurs a loss of INR 50000 on Bitcoin (VDA-1) during the same year then this loss of INR 50000 should be allowed to set off against a gain of INR 100000.

    However, when it comes to filing income tax returns, if transaction data is entered date-wise and any transaction shows a loss, it is automatically considered as NIL (no loss) then how it can possible to set off of Losses incurred on transfer of VDA of one kind against the gains from any transaction involving same VDA.

    Now what is your view on the above?

    1. Lalit Munoyat says:

      Gain and loss even between the same type of VDA is not allowed to be set off. This no set off of any loss on any VDA is not permitted.Each pair of purchase and sale of any VDA is treated independently and taxed

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July 2024