Budget 2022 Speech: Income From Transfer Of Virtual Digital Asset To Be Taxed At 30%

Losses from digital assets will not be able to set against any income, the FM noted in her fourth budget

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New Delhi: In her Union Budget speech Tuesday, Finance Minister Nirmala Sitharaman proposed income from virtual digital assets to be taxed at 30 per cent. She said while there is a phenomenal increase in virtual assets, it is important to devise tax mechanisms on them.

“I propose to provide that any income from transfer of any virtual digital asset shall be taxed at the rate of 30 per cent. No deduction in respect of any expenditure or allowance shall be allowed while computing such income, except the cost of acquisition,” Sitharaman said.

Losses from digital assets will not be able to set against any income, the FM added. In order to catch the transaction details, the FM announced 1 per cent TDS on payments made on transfer of digital assets above a threshold.

In fact, the gift of digital assets is also to be taxed in the hands of the recipients. Quoting text from epic Mahabharata, the FM proposed major changes in the taxation regime.

In her fourth Union Budget speech, the FM also said the Reserve Bank of India-led digital rupee would be launched in FY23. The digital rupee or central bank digital currency will be introduced using the blockchain technology, the minister said.

The RBI had introduced the proposal of Central Bank Digital Currency (CBDC) in October, seeking to amend the Reserve Bank of India Act, 1934. 

India Inc On Virtual Digital Asset To Be Taxed At 30%

Adhil Shetty, CEO, BankBazaar.com, said FM's announcement gives more clarity to tax filers.  

"The taxation of virtual assets is now clearly defined. So we now at least know what tax filers can expect this year. Individuals might have wanted lower LTCG taxes and and carry forward of losses similar to equity or housing. But this is at least a start," he said.

Keyur Patel, Co-Founder and Chairman of GuardianLink and BeyondLife.Club, said: "Union budget at this juncture is as varied as possible when it comes to its stance on crypto and NFTs. It seems there is clear indications from the external chatter, that implication of long-term capital gains and short-term capital gains deduction at the source of sales is a possibility for crypto transactions. It is an asset class and should not be treated any different than other assets, so it would be an obvious step to tax it upon gain with inflation-adjusted pricing."

As far as NFTs go, he added, they are "digital assets like art, music or any other form of collectible art, and GST may be a more applicable tax structure than long-term or short-term taxation".

He said it is yet to be seen where all this goes but it is clear that taxation governance for both crypto and NFTs is "imminent next step".

Sundara Rajan TK, Partner at DVS Advisors LLP, said: "The clarity on the tax of digital assets is long overdue and was expected to be provided this year. The announcement of a tax of 30% on the digital assets, coupled with the government launching its own digital currency, is an indication that the government intends to discourage the same and would intend that only the HNIs make such investments and that the government shall not permit cryptos as currency. The caping of surcharge at 15% is welcome and though no separate relief was given to HNIs, this would also be favourable to such HNIs with high capital gains income."

Archit Gupta, founder and CEO at ClearTax, said: "Government has brought in 30% tax on cryptos income, where no deduction for any expenses except cost of acquisition shall be allowed. Gift of virtual assets shall also be taxed for the recipient. This clears the air on taxes for cryptos, however, there are several types of incomes people earn from cryptos and hopefully more clarity will be available in the Budget documents."