Exchanging gifts during Diwali has become an integral tradition, adding a touch of joy to the festival. As the festivities unfold, people exchange sweets and gifts with their loved ones, friends, and colleagues. In corporate circles, employees often receive bonuses, sweets, or thoughtful gifts from their employers. In this modern age of technology, an emerging trend is gifting unique virtual assets such as non-fungible tokens (NFTs), cryptocurrencies, or other virtual digital assets (VDAs) during Diwali.
However, it's crucial to be aware that some of these gifts can trigger tax implications under existing Income Tax (I-T) laws. So, alongside the joy of giving and receiving, individuals should consider the taxation aspects of NFTs and cryptocurrencies received as gifts.
Navigating the Tax Landscape
The Income Tax Act delineates the taxation of gifts based on their value and the donor. Some gifts fall under the exempted category, while others do not. If a gift does not qualify for exemption, the recipient is required to declare it while filing their Income Tax Return (ITR). As per Section 56(2) of the I-T Act, gifts exceeding Rs 50,000 in value in a financial year are subject to taxation.
Categorising Gifts for Diwali
Gifts can be broadly categorised into two sections: monetary and non-monetary gifts, further classified based on their nature.
- Monetary Gifts
Cash, drafts, or checks fall into the monetary gift category. They are subject to taxation, but there's a threshold. Gifts in cash or checks are tax-exempt as long as their cumulative value does not exceed Rs 50,000 in a financial year.
- Non-Monetary Gifts
Land or buildings are considered immovable property. They become taxable if the stamp duty value of the immovable property exceeds Rs 50,000.
Items such as jewellery, paintings, shares, securities, etc., are categorised as movable properties. Taxation is applicable if the fair market value of these items exceeds Rs 50,000. Notably, jewellery is always taxable, but a motor car gifted is not considered movable property and remains exempt from taxation.
The Crypto Conundrum During Diwali
With the rise of cryptocurrencies, it's imperative to understand the taxation implications of gifting virtual digital assets (VDAs). In this regard, Finance Minister Nirmala Sitharaman's announcement in the Union Budget speech bears significance. Starting from April 1, 2023, all forms of VDAs or crypto assets sold at a profit will be subject to a 30 per cent tax. Additionally, all crypto transactions will be subject to a 1 per cent tax deducted at source (TDS). Consequently, gifting VDAs, such as cryptocurrencies, will attract taxation under the new regulations.
In conclusion, while the act of giving and receiving gifts during Diwali is a cherished tradition, it is essential to remain aware of the tax implications, especially in the evolving landscape of digital assets and cryptocurrencies. Understanding the tax rules can ensure a hassle-free and joyful festive celebrations for all.
Expert View
Amit Gupta, managing director at Sag Infotech, while talking to ABP Live, confirmed that in India, the tax implications of gifting cryptocurrency have changed with the introduction of Budget 2022. "The recipient of a cryptocurrency gift, whether it's cryptocurrency, NFT, or other Virtual Digital Assets, is now liable to pay taxes on the gift. This tax applies if the gift is received from a non-relative and its value exceeds Rs 50,000."
The giver of the cryptocurrency gift is not responsible for paying any tax, Gupta explained. Recipients of such gifts must report them under the IFOS section in the Income Tax Return (ITR) and pay tax at applicable slab rates. Additionally, when they sell the gifted cryptocurrency, they should report it under Capital Gains and pay a 30 per cent tax, he added.