Tax Provisions on Cryptocurrency and NFTs in India

Tax Provisions on Cryptocurrency and NFTs in India

Namaste!,

What’s cooking new, hope it’s well in your life, We’ve brought you a brief recipe of Taxation on Cryptocurrency  

Taxessional Quicap:

Meaning: Defined under 2(47A) Income Tax Act.

Tax Liability: At the time of transfer

Taxable from: 1st April 2022 (proposed in Finance Act 2022-23)

Cost of Acquisition: Allowed to be deducted from sale amount (‘NIL’ in case of Airdropes/ Mining).

Deductions from gain: Not Allowed

Losses: Not allowed to set off/ carry forward

1. Meaning of Cryptocurrency 

Cryptocurrency or “Virtual Digital Assets” as referred and taxed in Finance Budget 2022-23, are defined in Section 2(47A) of Income Tax Act,1961:

(a) generated through cryptographic, providing a digital representation of value exchanged with or without consideration. 

(b) a non-fungible token

2.  When does Tax liability on Crypto arise?

At the time of Transfer (includes sale, exchange etc.)

  

3.  Effective Date for taxation of cryptocurrencies?

Income from transfer of Crypto is taxable from 1st April, 2022 onwards.

How is Income from Cryptocurrencies Taxable in India?

• Income from the transfer of crypto is taxable at 30% flat rate.

• Cost of acquisition can be deducted from sale amount.

• For the calculation of Cost of acquisition, we need to calculate profit at FIFO basis.

• No Deduction is allowed in Crypto.

• Loss from sale of crypto cannot be set off against any other income as well as income from other crypto also.

• No carry forward and set-off of losses to future years is allowed.

Example:

Mr. A purchased one BTC @20,50,000/- and sold it for 20,46,000/-. You have also purchased ETH @14,00,000/- and sold it for 18,60,000/-.

In this case, Tax will be applicable on 460,000(18,60,000-14,00,000) *30% = 13,800. No setoff of loss on BTC will be allowed. 

4.  How is Airdrops and Mining cryptocurrencies taxed?

In the case you transfer crypto that you got from airdrops then, cost of acquisition will be nil, as they are free tokens. Total sale value will be the Profit in that case and 30% tax will be calculated thereon.

Example:

Mr. A received a Free cryptocurrency as airdrop and he sold it for Rs. 2,00,000/- 

Then in this case, Tax liability will be 2,00,000*30% = 60,000/-.

 

Blog By,

Kartik Bhalla

Team Taxessional