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Crypto taxation in India: all about taxation of cryptocurrency in India

In India cryptocurrency has been coined as ‘Virtual Digital Asset’ and along with cryptocurrencies, NFTs have also been included in the definition of Virtual Digital Asset. The taxability of the Virtual Digital Assets was a gray area until the budget of 2022; after the budget and subsequent clarification and FAQs issued at various times by the Income Tax department the taxation of Virtual Digital Asset has become clearer. Let us understand various facets of the taxation of Virtual Digital Asset.

What are Virtual Digital Assets:

Any code or token which is generated through cryptographic means and functions as a store of value is called Virtual Digital Asset. It may have representation or promise of having inherent value. Virtual Digital Asset includes Non-Fungible Token. However, it doesn’t include gift cards or vouchers which may be used to obtain goods or services or discount at a discount or free of cost or subscription of any website or platform.

Heads of Income for Virtual Digital Asset:

It seems that the gains from sale of Virtual Digital Asset can be categorised under income from Capital Gains or even from Income form Business and Profession.The tax treatment, however, will not change under either of the heads of income. Schedule VDA has been placed under the head Capital Gains while Income from Business and Profession includes adjustments of income and expense of cryptocurrencies in schedule BP.

Computing the Gains:

While computing the gains form transaction of VDA, only the cost of acquisition shall need to be deducted from the selling price. Any other expenses like selling expenses, mining expenses are not deductible. Furthermore, infrastructure expenses for mining can also not be deducted to arrive at the gains of VDA transactions.

Set off of losses:

Each VDA is to be considered to be an asset class of its own. So, loss on transaction of a particular VDA cannot be used to set off the gains out of transaction of another VDA. For example, if a person has gains of Rs 1,00,000 arising out of transfer of Bitcoin and loss of Rs 70,000 out of transfer of Ethereum, then he has to pay taxes on the gains of Rs 1,00,000 on Bitcoin. The loss of Ethereum will not be used to set off the gains of Bitcoin and if there are no gains out of transfer of Ethereum, the loss of Rs 70,000 will be exhausted.

The tax on gains of transfer of VDA:

The tax rate of gains out of transfer of VDA is 30%, which will need to be increased by the Health and Education Cess and surcharge if applicable. Furthermore, since the tax rate is a special rate of tax, the benefit of basic exemption limit shall not be applicable on it.


Mr A has following income during the FY 2022 - 23

Income from salary Rs. 2,00,000, Interest income Rs. 5,000 and Income from transfer of VDA Rs. 40,000.

What will be his tax liability?

In this case total income (excluding Income from VDA) is below the maximum amount of income not chargeable to tax, i.e., less than Rs 2,50,000. Therefore, tax on income other than income from VDA is Nil. Tax on Income from VDA is Rs. 12,000 (Gains form transfer of VDA will be taxed at rate of 30% plus additional surcharge and cess).

Furthermore, if a person receives a gift in the form of VDA, then such gift received could fall within the ambit of gift tax under section 56 of Income Tax Act. Where VDA is received in exchange of nothing, i.e., as gift and the aggregate fair market value of such VDA exceeds Rs. 50,000, the whole of the aggregate fair market value of VDA will be chargeable to tax. Also, where any property is received for a price that is less than the aggregate fair market value of the VDA by an amount exceeding Rs. 50,000, the difference between fair market value and price paid is chargeable to tax.

In both the situations, the limit of Rs. 50,000 shall be checked for every transaction and not in aggregate of all transactions.

It is to be noted that, the section which governs the taxability of VDAs i.e. Section 115 BBH, doesn’t distinguish between tax resident and tax non residents, so the taxability shall be the same for both tax resident and tax non resident. However if the NRIs transfers VDAs in exchanges located outside India from the VDA wallet located outside India and the proceeds come in bank accounts located outside India, then such gains will not be taxable in India in the hands of the NRIs.

Sournce : Ecnomicstimes

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