Also, the loss on account of transfer of such assets cannot be set off against any other income.
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).
There has been an unprecedented increase in transactions in virtual digital assets, he said, adding that the volume and frequency of these transactions have made it imperative to provide for a specific tax regime.
“Accordingly, for the purpose of taxation of virtual digital assets, I propose to provide that any income arising from transfer of any virtual digital asset shall be taxed at the rate of 30%,” it said.
Ms Sitharaman said that no deduction or allowance will be allowed in respect of any expenditure while computing such income except the cost of acquisition.
“Furthermore, losses arising from the transfer of virtual digital assets cannot be set off against any other income,” she said.
Further, to capture the details of the transaction, it also proposed to provide TDS on payments made in respect of transfer of virtual digital assets at the rate of 1% of such consideration above a monetary limit.
He said that the gift of virtual digital asset is also proposed to be taxed in the hands of the recipient.
Abhinav Soumani, CEO, Cryptotax Pvt Ltd said, “The government has set a fixed 30% rate to ensure that all investors pay a percentage of their profits to the government as tax.”
“The most commonly used cryptocurrency tax calculation methods include the highest, first out (HIFO) method; the last in, first out method; and the highest, first out method,” he said.
“Of these tax calculation methods, the HIFO approach is most beneficial for investors who wish to use coins of their highest cost basis. [cryprocurrency/bitcoins] And apply it to the coins sold,” he said.
“This will significantly reduce the taxable profit amount and provide some relief to the investors,” he said.
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