Over the past few months, there has been much discussion (and a lot of confusion) surrounding crypto tax in India. In this post, I will briefly explain all the laws that apply to cryptocurrencies in India.
Before we start, let’s quickly understand what Non-Fungible Tokens (NFT) to be.
NFT is digital proof of ownership over an underlying asset such as:
digital art collectibles virtual game items physical assets Cryptos broadly can be divided into six categories:
Currencies that are not supported by fiat, for example: Bitcoin (BTC), Monero (XMR) Fiat-supported currencies, for example: Tether (USDT) Utility coins, for example: Ether (ETH)Filecoin Governance Token (FIL), example: Uniswap (UNI) NFTs not backed by tangible assets NFTs backed by physical assets Virtual digital assets
The categories from one to five are Virtual Digital Assets (VDA) under section 2 (47A) of the Income Tax Act.
Some of the laws that apply to VDA are:
VDA is defined as ‘property’ under section 56 of the Income Tax Act in relation to ‘Income from other sources’.
Many transactions in VDA are subject to one percent tax withheld at source (TDS) under section 194S of the Income Tax Act titled ‘Payment on transfer of virtual digital assets’.
The government has issued guidance explaining when TDS is applicable and when it is not. This could be download from here.
The government has also issued a TDS-related order for transactions other than those taking place on or through the Exchange. This could be download from here.
The Government has also issued a Circular stipulating a number of exemptions from section 206AB for TDS on VDA. Section 206AB is titled “Special provisions on withholding tax at source for non-filers of income tax” and the Circular may download from here.
Income from VDA is taxed 30% under section 115BBH of the Income Tax Act titled ‘Taxes on income from virtual digital assets’.
What doesn’t qualify as a VDA?
The government has issued a notification specifying the following are not considered VDAs:
Gift cards or vouchers Rewards Points or loyalty cards Sign up to Tangible Asset-backed NFT websites or platforms or apps
According to the government of India, an NFT will not be considered a VDA if it meets two conditions:
An NFT transfer results in the transfer of ownership of an underlying tangible asset.
The transfer of ownership of those basic tangible assets has legal effect. In March, Ritesh Pandey, an MP from the Bahujan Samaj Party (BSP) expressed concern in Lok Sabha. At the time, Pandey said this one percent TDS would boost ‘Red Tapism’ while eliminating this growing class of digital assets.
The expression ‘red tapism’ refers to formal rules that are considered excessive and rigid.
Pandey’s comment went against the context of a Outrage from India’s crypto communityis asking the government to reconsider the tax regime it is pushing the crypto industry into.
Cryptocurrency is an unregulated digital currency that is not a legal tender and is subject to market risk. The information provided in the article is not intended and does not constitute financial advice, trading advice or any other advice or recommendation of any kind provided or endorsed by NDTV. NDTV will not be liable for any loss arising from any investment based on any perceived recommendations, forecasts or any other information contained in the article.
