Finance Minister Nirmala Sitharaman, during her Budget speech in Parliament on Tuesday, announced a scheme for taxation of virtual digital assets, such as cryptocurrencies and non-fungible tokens (NFTs).
Stating there had been a phenomenal increase in transactions in virtual digital assets, she said the magnitude and frequency of these transactions had made it imperative to provide for a specific tax regime.
“Accordingly, for the taxation of virtual digital assets, I propose to provide that any income from transfer of any virtual digital asset shall be taxed at the rate of 30%,” she said.
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Ms. Sitharaman added there would be no deduction in respect of any expenditure nor any allowance allowed while computing such income except cost of acquisition.
“Further, loss from transfer of virtual digital asset cannot be set off against any other income,” she said.
Further, to capture the transaction details, she also proposed to provide for TDS on payment made in relation to transfer of virtual digital asset at the rate of 1% of such consideration above a monetary threshold.
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Gift of virtual digital asset is also proposed to be taxed in the hands of the recipient, she said.
“The government has set a fixed 30% rate to ensure all investors pay a percentage of their gains to the government in the form of taxes,” Abhinav Soomaney, CEO, Cryptotax Pvt Ltd, said.
“Most commonly used cryptocurrency tax calculation methods include highest in, first out (HIFO) method; last in, first out method; and highest in, first out method,” he said.
“Out of these tax calculation methods, the HIFO approach is most beneficial for investors who would like to use their highest cost basis coins [cryprocurrency/bitcoins] and apply that towards coins sold,” he said.
“This would reduce the taxable gain amount significantly and give some relief to investors,” he said.