Crypto Tax: Nirmala Sitharaman Announces 30% Tax On Income From Virtual Assets

Given the phenomenal increase in the number of transactions, the finance minister has introduced a specific tax regime for virtual digital assets like cryptocurrencies, non-fungible tokens or NFTs.

Finance Minister Nirmala Sitharaman stated the highlights of this new income tax provision in her speech:

• Any income from transfer of an virtual digital asset to be taxed at 30%.

• No deduction to be allowed except cost of acquisition.

• Gift to be taxed in the hands of the recipient.

• Tax deductible at source applicable at the rate of 1% above a certain threshold.

The Finance Bill has defined virtual digital asset to include

• 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;

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

• any other digital asset, as the central government may, by notification in the Official Gazette specify

"India is finally on the path to legitimising the crypto sector in India," Nischal Shetty, founder and chief executive officer at WazirX, said in a statement. India launching a blockchain-powered Digital Rupee will pave the way for crypto adoption, he said.

"The biggest development today, however, was a clarity on crypto taxation. This will add the much needed recognition to the crypto ecosystem of India," he said. "We also hope this development removes any ambiguity for banks, and they can provide financial services to the crypto industry."

Ajay Rotti, tax partner at Dhruva Advisors warned against interpreting this budget move as a legitimisation of crypto currency or any virtual digital asset. That will depend on the new law in the works.

The 30% capital gains tax rate on virtual digital assets is higher than capital gains on any other class of assets but atleast it is lower than top rate on income tax, Rotti said.

Those wanting to pay a lower rate as applicable to any other capital asset would need to sell before Apr. 1, he added. The same applies to those who may want to set off a crypto loss against other income.

Not everyone is reading the provision that way.

It is also important to note that the 1% tax deducted at source will create a transaction trail.