Over the past few months, there has been a lot of discussion (and a lot of confusion) about the crypto tax in India. In this post, I will briefly explain all the laws that apply to cryptocurrencies in India.
Before we begin, let’s quickly understand what non-fungible tokens (NFTs) Huh.
NFTs are digital proofs of ownership of an underlying asset such as:
Digital Art Collectibles Domain Names Virtual Game Items Physical Assets Crypto can be broadly divided into six types:
Non-fiat-backed currencies eg bitcoin (btc), Monero (XMR) fiat-backed currencies such as Tether (USDT) utility coins eg Ether (ETH)Filecoin (FIL) governance tokens such as Uniswap (UNI) NFT is not backed by tangible assets NFT is backed by tangible assets Virtual digital assets
Categories are one to five Virtual Digital Assets (VDA) Under section 2(47A) of the Income Tax Act.
Some of the laws that apply to VDAs are:
VDA comes under the definition of ‘assets’ under section 56 of the Income Tax Act which deals with ‘income from other sources’.
Multiple transactions in VDA take a percentage Tax Deducted at Source (TDS) Title ‘Payment on transfer of virtual digital asset’ under section 194S of the Income Tax Act.
The government has issued guidelines regarding when TDS is applicable and when it is not. these can be downloaded from here,
The government has also issued an order regarding TDS for transactions other than those taking place on or through the exchange. This may happen downloaded from here,
The government has also issued a circular providing certain relaxations for application of section 206AB of TDS on VDA. Section 206AB is titled “Special provision for deduction of tax at source for non-filers of income-tax return” and the circular may read as downloaded from here,
income from VDA is taxed at 30 percent Title ‘Tax on income from virtual digital assets’ under section 115BBH of the Income Tax Act.
What doesn’t qualify as a VDA?
government has issued notification Specifying the following is not considered VDA:
Gift Cards or Vouchers Mileage Points Reward Points or Loyalty Cards Subscription to Websites or Platforms or Applications Tangible Assets Backed by NFTs
As per the Government of India, an NFT will not be considered as a VDA if it fulfills two conditions:
Transfer of NFTs is the transfer of ownership of an underlying tangible asset.
Transfer of ownership of such underlying tangible assets is legally enforceable. In March, a Bahujan Samaj Party (BSP) MP Ritesh Pandey had expressed concern in the Lok Sabha. At that time Pandey had said that this one percent TDS will be encouraged. ‘red tape’ Eliminating this emerging digital asset class.
The phrase ‘red tape’ refers to formal rules that are claimed to be excessive and rigid.
Pandey’s remarks came against the backdrop of a Outrage from India’s crypto communityWhich is urging the government to reconsider the tax regime in which it is propelling the crypto industry.
Cryptocurrency is an unregulated digital currency, is not legal tender and is subject to market risks. The information in this article is not intended to be financial advice, trading advice or any other advice or a recommendation of any kind offered or endorsed by NDTV. NDTV shall not be liable for any loss arising out of any investment based on any alleged recommendation, forecast or any other information contained in the article.