The Indian Government has finally come around to taxing things like cryptocurrencies and NFTs. Both of these things (among others) have been included under the group called “Virtual Digital Asset” (VDA). Until the 2022 budget was introduced, there was no clarification about the taxation of VDAs. However, since 2022, the Government and the Income tax department have provided a lot of clarity about VDAs and we have compiled some of the most crucial stuff for you.
What is a Virtual Digital Asset?
Virtual Digital Asset is an umbrella term to describe all kinds of codes or tokens that have been generated through cryptographic means and store some kind of monetary value. Aside from cryptocurrencies like Bitcoin and Ethereum, Non Fungible Tokens (NFTs) are also included in Virtual Digital Assets. Gift cards and vouchers used to purchase goods and services are not considered Virtual Digital Assets.
How is income from Virtual Digital Assets taxed?
As per the Government, all the gains earned via the sale of VDAs fall under income from Capital Gains/Income from Business and Profession.
When gains from VDA transactions are calculated, the cost of acquisition is deducted from the selling price. Selling expenses, mining expenses, and mining related infrastructure expenses are never deducted for calculating gains accrued by selling VDAs.
Set Off Losses
Since every VDA is considered its own asset class, a loss suffered while transacting a particular VDA can’t be used to set off the gains out of a transaction of another VDA. Let’s take an example of a person who earned a profit of Rs. 50,000 on his Bitcoin transaction but suffered a loss of Rs. 35,000 on an Ethereum transaction. Even though the person lost 35,000 rupees, it will not be taken into account while taxing the Rs. 50,000 gained during the Bitcoin transaction. So the person will be charged the tax on the entire Rs. 50,000 gained. The loss of Rs. 35,000 will not be taxed as the tax is only on money gained, not lost.
What is the tax rate on VDA gains?
Currently, the tax rate on gains earned through VDAs stands at 30%. The final tax rate will be slightly higher once Health and Education Cess and surcharge are applied.
What about NRI crypto investors?
The taxability of VDAs is covered under Section 115 BBH and it holds no distinction between Indian residents and Non Resident Indians (NRIs). However, if you are an NRI who trades in VDAs via exchanges located outside India and deposit the gains in bank accounts outside India, your gains will not be taxable in India.