India introduced laws to define taxation on transactions involving Virtual Digital Assets (VDAs), which also include cryptocurrencies.
The legal framework shall affect all individuals as well as businesses and exchanges. The inclusions lay down how and at what rate gains from the sale of VDAs shall be taxed.
Let us first understand the term ‘Virtual Digital Asset’ (VDA) which has been defined as 'any information or code or number or token (not an Indian or any foreign currency) generated through cryptographic means':
- Providing a digital representation exchanged with or without consideration; and
- With the promise of inherent value with a store of value or unit of account; and
- Used in (but not limited to) financial transactions or investments; and
- Can be transferred, stored or traded electronically
NFT and any other token similar in nature are included in the definition (the government will notify the NFTs which will be included)
Tax on crypto gifts
Tax treatment on gifts differs based on whether it is money, immovable property or movable property. In Budget 2022, VDAs were included within the scope of movable properties. Therefore, crypto gifts received will be taxed as ‘income from other sources’ at regular slab rates if the total value of gifts is more than Rs 50,000.
Cryptos can be gifted either through gift cards, crypto tokens or crypto paper wallets or even as airdrops. Crypto received as gifts from relatives will be tax-exempt. However, if the value of the crypto gift from a non-relative exceeds Rs 50,000, it becomes taxable in the hands of the receiver. Tax shall be at the rate of 30 percent (additional cess and surcharge as applicable).
Gifts will be taxed on the value determined as per Rule 11UA, i.e. at the fair market value of the tokens as on the date of receipt on exchanges or DEXes. Tax will be levied at 30 percent on such value.
Gifts received on special occasions such as marriage or through inheritance or will are also exempt from taxes. Gifts received on Diwali are not exempt unless these are exchanged between relatives, who are specified in the Income Tax Act. Relative refers to husband, wife, brother, and sister or any lineal ascendant or descendant of that individual.