The Budget of 2022 has clearly indicated that India is on the path to legitimizing the crypto sector. For starters, the news about India launching a blockchain-powered Digital Rupee is definitely a game-changer.
Crypto enthusiasts have waited for a long time now to get some clarity on the legality and taxation front. In this regard, the finance bill of 2022 has answered a few questions.
Here are the crypto-specific highlights from the budget of 2022:
- Definitions: The term Virtual Digital Asset has been explicitly defined. Virtual Digital Asset: In simplest terms, Crypto and Non-Fungible Tokens (NFT) can now specifically be recognized as virtual digital assets! …” This is 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…”
- Classification: Section 56 of the Income-tax Act has been redefined to include ‘virtual digital asset.’ That means if an assess receives a virtual digital asset like crypto or NFT as a gift, it will be taxed under the head “Income from other sources” in the hands of the recipient. The 50,000 cap associated with gifts will be available here as well.
- Taxation: Section ‘115BBH’ is designed to tax virtual digital assets. On any income earned from the transfer of any virtual digital asset, the assessee is required to pay tax at a rate of 30%. This means:
- If the selling price of the virtual digital asset is ₹ 300 and the corresponding purchase price is ₹200, the amount of tax payable will be calculated on the net income:
Selling Price: ₹300
(Minus)Purchase Price: ₹200
Net Income: ₹100
Tax Payable: ₹30 (₹100*30%)
- No expense against the income can be claimed. Only the cost of acquisition (purchase price) can be deducted from the sale proceeds to arrive at the net income.
- Set-off and carry-forward of losses are not allowed.
- Tax on transfer of virtual digital assets: For every transaction related to the transfer of virtual digital assets, tax at 1% under section 194S has to be paid to the government. Here, the person liable to pay tax will be the person making the payment for transfer (purchaser). However, here are some points to remember:
- Consideration (in cash or kind) is necessary to attract the provisions of section 194S.
- If the purchaser of the virtual digital asset is not liable for a tax audit or does not have income from business and profession (e.g.: salaried individuals), then – if the total value of the consideration does not exceed ₹50,000 (fifty thousand rupees) during the financial year, the tax deduction of 1% will not be applicable. However, if a tax audit is applicable or if income from business and profession is offered for tax, the limit of ₹50,000 is reduced to ₹10,000.
- More clarity on the forms, timelines, and procedure for depositing the tax is awaited.
This clarity on crypto taxation will definitely add to the much-needed recognition of the crypto ecosystem in India. We also hope that this development removes the ambiguity among banks and financial bodies so that they can provide financial services to the crypto industry. While this is just the beginning, we are looking forward to much more positively.
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