Union Budget 2022 | 30% Tax On All Digital Assets + 1% TDS: All You Want To Know

Magnitude & frequency of transactions pertaining to digital assets have made it important to provide for specific tax regime, Finance Minister Nirmala Sitharaman said in her Union Budget 2022 speech. 

New Delhi: Union Finance Minister Nirmala Sitharaman Tuesday presented her fourth Union Budget in Parliament. 

Presenting the Narendra Modi government’s penultimate budget in the second term, Sitharaman made some important announcements, and a significant among them pertained to digital assets. The finance minister announced India’s decision to introduce its own digital currency this year, and a 30 per cent tax on income from transfer of digital assets, which include cryptocurrencies and non-fungible tokens (NFTs).

Taxation Of Virtual Digital Assets

Noting that there has been a phenomenal increase in transactions pertaining to virtual digital assets, Sitharaman said the magnitude and frequency of these transactions made it important to provide for a specific tax regime. 

She proposed that any income from the transfer of a digital asset will be taxed at the rate of 30 per cent.

Besides, “to capture the transaction details”, the minister also proposed a 1 per cent TDS on payment made in relation to the transfer of a digital asset. She mentioned a “monetary threshold” for such a transaction but did not elaborate on it.

She also said there will be no deduction in respect of any expenditure or allowance while computing the income from the transfer of a digital asset, except cost of acquisition. Also, any loss from the transfer of a virtual digital asset cannot be set off against any other income, Sitharaman said.

The budget proposal made it clear that a virtual digital asset given as a gift will also be taxed at the hands of the recipient.

What Does It Mean For Crypto/NFT Investors?

Non-fungible tokens or NFTs are essentially digital collectibles, to create or purchase which one needs to invest a bit in cryptocurrencies.       

Those in the industry feel the Budget decision now officially brackets cryptocurrency with NFTs, which almost gives crypto a legal status in India.   

Keyur Patel, co-founder and chairman of GuardianLink and BeyondLife.Club, said virtual assets "as lumped into one" by the government implies that crypto and NFTs are "all under same bucket".

"For crypto No deduction other than cost of acquisition to be allowed and No set off permitted against other income or losses, as well as Tax withholding to be triggered on sale at 1% beyond certain threshold. This implies huge friction initially until the user base understands that all asset classed must be taxed for the holistic economic growth," he said.

"Taxation of virtual digital currency has driven away the concerns on the transactions of virtual currencies being banned in India over the introduction of the Cryptocurrency and Regulation of Official Digital Asset Currency Bill, 2021. However, the taxation rate introduced seems to be deterrent to the interest of the investors," said L Badri Narayanan, Executive Partner, Lakshmikumaran & Sridharan Attorneys. 

Avinash Shekhar, the CEO of ZebPay, said the move to tax virtual digital assets gives investors and crypto exchanges a clearer picture on the road ahead. 
 
“Tax has always been applicable to gains on virtual digital currencies, but the ecosystem did not have clarity on it. The move to tax virtual digital assets gives the entire ecosystem including investors and exchanges transparency on the road ahead. 30% tax on income from virtual digital assets, while high, is a positive step as it legitimizes crypto and hints at an optimistic sentiment towards further acceptance of crypto and NFTs across stakeholders in the country."

He said the government seemed to have come a "long way in its stance towards crypto from last Feb to today".

Vishakha Singh, VP, WazirX NFT Marketplace, said: “It’s heartening to see that the government has acknowledged the potential for blockchain technology and digital assets, and is looking at formalising policies around them. It's a widely acknowledged fact that the crypto/NFT industry has also led to a boom in job opportunities and the government is now recognising the same. Their decision reflects the growing potential of NFTs as a digital asset in our country. We officially have a definition of digital assets, both fungible and non-fungible, on paper. We hope that this development leads to mainstream crypto/NFT adoption in India.”

Pratik Gauri, co-founder & CEO, 5ire, meanwhile, said the 30 per cent tax may discourage some investors as it appears severe. "However, taxation signals at the Indian government and the ecosystem accepting digital assets, which will further the adoption of crypto and NFTs, blockchain and other new-age technologies,” he said.
 
Echoing similar sentiments, Venus Dhuria, Co-founder, AppyHigh, said: "Though 30% tax rate is on the higher side, and more clarity is required on the setting off of losses, this is still a start and hopefully with time more clarity will emerge. Another benefit of recognising anything via regulation is that it prevents unscrupulous or illegal activities in the space."

Melbin Thomas, co-founder of Sahicoin, is of the opinion that this will change misconceptions around crypto assets. 

"It is encouraging to see that the government has taken a positive step towards regulating digital assets. This will change a lot of misconceptions around crypto assets and pave the way forward to classifying them as a separate asset class," he said. "Government mandated 1% TDS for every trade will enable it to track crypto transactions and provide much needed visibility on the holders and users of crypto assets."