How is cryptocurrency taxed?

As per the recent announcement by the Govt in the union budget, all cryptocurrencies including NFTs are to be classified as Virtual Digital Assets (VDA) and the ITD proposed a taxation framework for VDAs. Section 115BBH will be inserted in the Income Tax Act, 1961 explaining the taxation on income from these assets. Profits from VDAs such as crypto and NFTs will be taxed at a flat tax of 30%. Income tax dept is expected to release further guidance to clarify the tax implications on a wide range of crypto transactions.

The 30% flat tax rate is applicable irrespective of the nature of income, so it doesn't matter if it is investment income or business income. There is also no distinction between short-term and long-term gains or whether you're a private investor or commercial trader. The 30% income tax is applicable from 1 April 2022 and the TDS of 1% is applicable from 1 July 2022

Following provisions, relating to Virtual Digital Assets, are proposed to be inserted vide the Finance Bill, 2022.

1. Section 2(47A) defines ‘Virtual Digital Asset’;

2. Section 115BBH governs tax on income from virtual digital assets;

3. Section 194S covers ‘Tax Deduction at Source’ with regard to virtual digital assets.

4. Section 56(2)(X) inclusion of ‘Virtual Digital Asset’ within the definition of ‘Property’.