From cryptocurrencies to NFTs, India to tax all ‘virtual digital’ assets at 30%

From cryptocurrencies to NFTs, India to tax all ‘virtual digital’ assets at 30%
Finance Minister Nirmala SitharamanCanva/BI India
  • India plans to tax cryptocurrency transactions at a rate of 30%.
  • This is at par with the highest income tax slab applicable to individuals with an income in excess of ₹15 lakh per annum.
  • “The 30% rate of tax and restriction to set-off losses is a very bold move in discouraging transactions in crypto,” Ritesh Kumar, Partner at IndusLaw, told Business Insider.
India may not have any laws to govern cryptocurrencies yet, but it doesn’t want to miss out on the gold rush.

Finance Minister Nirmala Sitharaman announced that the country will be taxing all digital assets at a rate of 30% — no deductions or exemptions apply. This includes everything from cryptocurrencies to non-fungible tokens (NFTs) to other ways that people earn from digital assets, like yielding, farming and mining.

“Cryptocurrencies will be taxed at 30%. Any Income from the transfer of any virtual digital asset shall be taxed at 30%. No deductions and exemptions allowed. Loss from transfer of such assets cannot be set off against any other income.”

Finance Minister Nirmala Sitharaman during the Union Budget 2022-23

As compared to the conventional tax slabs, 30% is the highest tax bracket applicable to individuals with an annual income of more than ₹15 lakh.
From cryptocurrencies to NFTs, India to tax all ‘virtual digital’ assets at 30%

Moreover, gifts of virtual assets shall also be taxed for the recipient. And, tax deducted at source (TDS) will be imposed on payments for the transfer of crypto assets at a rate of 1% for transactions over a certain threshold. However, Sitharaman did not specify what this ‘threshold’ will be.

“Virtual digital assets, including a specific tax regime for virtual digital assets, such as crypto, while providing clarity is not in line with what the industry was expecting. The 30% rate of tax and restriction to set-off losses is a very bold move in discouraging transactions in crypto,” Ritesh Kumar, Partner at IndusLaw, told Business Insider.

Many things remain uncertain

The budget also made way for the ‘digital rupee’ — a central bank digital currency (CBDC) that will be run by the Reserve Bank of India (RBI). In the post-budget press conference, Nirmala clarified that the CBDC will treated as a currency while all other cryptocurrencies will be treated, which are not controlled by the RBI, will be taxed at 30%.

“This [tax rate] clears the air on taxes for cryptos, however, there are several types of incomes people earn from cryptos and hopefully more clarity will be available in the budget documents,” Archit Gupta, the chief executive (CEO) and founder of Clear (formerly ClearTax), told Business Insider.

While many see the proposed tax on transfer of virtual digital assets as a step forward to remove some of the uncertainty in the market, the detailed guidelines will determine how the tax is actually implemented.

“One would need to read the fine print, especially the definition of virtual digital assets, to understand the exact implications of the announcement. In absence of law regulating trading in crypto and digital assets, this is a step forward by the government of India,” said Rajat Prakash, the managing partner at Athena Legal.

Crypto investors will no longer have the option of capital gains

India was set to release its cryptocurrency bill during the Winter Session of Parliament, but it never made it into the house. According to Sitharaman, at the time, the bill was pending approval by the Cabinet — the highest decision-making body of the Indian government headed by Prime Minister Narendra Modi.

“We do hope that the Government will give exchanges and other businesses a certain time period to enable the tech behind TDS deduction and bookkeeping. Offsetting and carrying forward losses have worked well in other countries but we are happy to see a consideration given to all such instances,” Vikram Subburaj, the CEO of Giottus Crypto Exchange, told Business Insider.

Until now, as per the stand income tax rules, the gains on crypto transactions, fell either under ‘business income’ or ‘capital gains’, according to tax experts. The classification depended on the nature of the transactions and the tenure across which they took place.

For instance, cryptocurrency transactions would be taxed as ‘capital gains’ if they are held with longer-term appreciation in value with fewer trades. Holding for less than three years would attract whichever rate is applicable under the prescribed brackets, and holding for more than three years would attract a 20% rate.

Overall, however, the industry seems to welcome the move since it gives the crypto space a layer of legitimacy. "It gives much-needed clarity and confidence to the industry," said CoinDCX CEO and co-founder Sumit Gupta.

"It’s a huge relief to see that our government is adopting the progressive stance of going ahead in the direction of innovation. By bringing in taxation, the government legitimises the industry to a large extent. The majority of people, especially corporates, who have been sitting on the sidelines because of uncertainties will now be able to participate in crypto," echoed WazirX's founder and CEO Nischal Shetty.

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