Budget 2022: FM Sitharaman proposes tax on crypto transactions

Taxation of virtual digital asset: Any income from transfer of digital asset will be taxed at 30%, announced Finance Minister Nirmala Sitharaman on Tuesday.

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

Speaking on the matter, Saraswathi Kasturirangan, Partner, Deloitte India, said, “Taxation of virtual digital assets – at 30%. No deduction other than cost of acquisition. No set off permitted against other income. Tax withholding to be triggered on sale at 1% beyond certain threshold. Deduction for employer contribution to NPS increased from 10 % to 14% for state govt employees on par with central govt employees. Not extended to non- govt employees.”

Amit Singhania, Partner, Shardul Amarchand Mangaldas & Co says, “As expected taxation regime on cryptocurrency has been introduced. However the proposed regime appears to be stringent and appears to be in line with speculative income.”

The finance minister also said the central bank will introduce a digital currency in the next financial year using blockchain and other supporting technology.

“Introduction of a central bank digital currency will give a big boost to digital economy. Digital currency will also lead to a more efficient and cheaper currency management system,” Nirmala Sitharaman said on Tuesday while presenting the federal budget.

The Budget has proposed a 30% tax on virtual digital assets. Further, the buyer shall be liable to withhold tax on payments made for the purchase of such asset at the rate of 1% as withholding tax. Also, gains or losses on sale of virtual assets will not be allowed as set off against any other gains or losses. i.e. it will be treated as a separate class of asset, said Saurrav Sood, Practice Leader, International tax, SW India.

“Such proposed inclusion of tax provision in the income tax is a first step towards taxing the digital assets and it will be interesting to see the definition of virtual assets i.e. whether it will be restricted to only cryptocurrencies or will also include Non-fungible tokens and such other types,” he added.

– Loss can’t be set-off against any other gain

– Gain from transfer of virtual digital asset is non-deductible

– Gift of virtual digital asset will be taxable too