FM Nirmala Sitharaman while presenting Budget 2022 announced that 30 percent tax on digital assets (virtual digital assets) will be taxed and any income from the transfer of such assets shall be taxed at 30 percent.
The NFT space in India started gaining steam last year when Bollywood celebrities like Amitabh Bachchan and sports stars like Yuvraj Singh launched their digital collectibles.
Table of Contents
30 Percent tax on Digital Assets
Explain:- If NFT is purchased for ₹100 when sold for ₹1,000, the 30 percent is effective on ₹900 which is the net effective gain for the seller.
Along with 30 percent tax, there will be 1 percent TDS (tax deducted at source) on payments made on transfer of digital assets, the FM had announced.
Mr. Ravi Kumar purchased cryptocurrency X in July 2020 for ₹10,000. Suppose, Ravi transfers this cryptocurrency X for ₹80,000 in September 2022, and TDS deducted is ₹800. The gain will be determined as ₹70,000. Tax at 30% will be payable ₹21000 plus cess will be payable i.e. ₹840 and Net Payable ₹21840. Of this, ₹800 TDS has already been deducted. Hence, the balance tax payable in this transaction will be ₹21,040.
The Finance Bill is progressively applicable from 1 April onwards. Assume that the cryptocurrency X is valued at ₹55,000 as of 10th February. Ravi should transfer the cryptocurrency A at ₹55,000 and book a profit of ₹45,000.
Considering it as a short-term capital gain for the FY 2021-22, the tax will be payable for this transaction based on slab rates. Assuming the total income of Ravi is within the basic exemption limit of ₹2,50,000, no tax is payable on this transaction. If he wants to continue holding the cryptocurrency X, Ravi purchased it again at the prevailing price of ₹55,000. Now as in the above example, suppose he transfers this cryptocurrency X for ₹ 80,000 in September 2022, and TDS deducted is ₹800. The gain will be determined ₹35,000. Tax at 30% plus cess will be payable i.e. ₹10,920. Of this, ₹650 TDS has already been deducted. Hence, the balance tax payable in this transaction will be ₹10,120. Hence, Ram is able to save tax of ₹10,920.
VDA Loss Set off
The loss on the transfer of VDAs (Virtual Digital Assets) will not be set off against any income. Gains on crypto cannot be set off against loss on shares. Also, crypto losses will not be eligible for carry-forward to subsequent years.
Shivam transfers cryptocurrency Z at a gain of ₹1,00,000 and in the same year he transferred cryptocurrency Y at a loss of ₹55,000. He believes that he must pay tax on the net gain of ₹45,000 only. This belief of Shivam is not correct. Tax on the gain of ₹1,00,000 is payable at 30% plus cess. The loss incurred on the transfer of cryptocurrency Y cannot be set off or carried forward. TDS is to be deducted on the transaction by the transferee from the payment consideration if the value of the transaction exceeds ₹10,000. For a certain specified person, this limit is increased to ₹50,000. These specific people include :
(1) Individual or HUF with any income other than income from business/profession
(2) Individual or Hindu undivided family with :
- Business turnover less than less than ₹1 crore
- Professional fees less than ₹50 lakh