Written by Sharmita Kar | Edited by Chandrashekar SrinivasanNew Delhi
New tax rules regarding virtual assets, such as cryptocurrencies and NFTs, or non-fungal tokens, under the Finance Bill 2022 will enter into force on Friday 1 April. As announced during the budget speech by Finance Minister Nirmala Sitharaman, all profits from trading in cryptocurrencies and similar digital assets will now be taxed at 30 percent, while a further 1 percent tax deducted at source (TDS) will be calculated when such a transaction takes place. The “crypto tax” is listed under the new section of the Finance Bill – section 115BBH – which deals with tax on virtual digital assets (VDA).
Investors were worried that the tax rate was too high, but Nirmala Sitharaman later clarified that this is a first step in taxing continued trade and a more detailed framework may be developed in the future.
Here are 5 rules for cryptocurrencies and NFTs you need to be careful about when investing:
- The 30 percent tax rate will not be applied to the amount invested but to the income from the sale of virtual digital assets. Although the government has not clearly defined what exactly is included under “virtual assets”, cryptocurrencies and the NFT are definitely part of it.
- No tax deduction will be made on expenses incurred during VDA transactions, other than the cost of acquiring such assets. Any losses arising from cryptocurrencies and NFTs will also be ignored for tax purposes. Only winnings will be taxed.
- However, any losses from virtual assets cannot be offset against other income (from shares, funds, etc.). Losses from digital assets can also not be carried forward to the next financial year.
- The government has also decided to deduct 1 percent TDS on all transactions involving virtual digital assets. This means that all sales of digital tokens, with profit or loss, will attract 1 percent TDS. However, a person can file tax returns in case of loss. The threshold limit for TDS is 50,000 for one year. In particular, the provisions for 1 percent TDS will enter into force on July 1, 2022.
- The crypto tax also applies to all virtual digital assets that are received as gifts. In such a case, the recipient will be taxed at 30 percent on the income from cryptocurrencies and NFT.