Crypto taxation in Budget 2022: Government announces 30% tax on digital asset gains

Crypto tax

The much-anticipated crypto tax regime is finally on the table. The Union Budget 2022-23 has proposed a 30% tax on proceeds made from the transfer of virtual digital assets like cryptocurrencies. Finance Minister Nirmala Sitharaman has introduced this new tax rate for crypto and other digital assets gains in her fourth Union Budget presented on Tuesday.

Here are the key points related to digital asset taxation announced by the Finance Minister:

30% Tax Rate

The Finance Minister, in her Budget speech on Tuesday, announced that the gains made from the sale or transfer of crypto assets will be taxed at 30% of the total proceeds. Although the 30% tax rate seems to be very high, there was no apparent direct impact of this announcement on the crypto prices today. One of the key reasons behind this is that the crypto trading community already had this figure in mind before today’s announcement. She said, “for the taxation of virtual digital assets, I propose to provide that any income from transfer of any virtual digital asset shall be taxed at the rate of 30%” The Finance Minister also added that the huge increase in the volume of transactions on virtual digital assets has made it imperative to bring it under a specific tax regime. 

No Set-off for Losses

Nirmala Sitharaman also said that the losses made from the transfer of such virtual digital assets like cryptocurrencies cannot be set off or carried forward against gains made from the transfer of digital assets or any other type of profit. 

Virtual Digital Assets in form of Gifts

The same tax rate is applicable if a virtual digital asset is transferred in the form of a gift. The recipient of the asset will be liable to pay the applicable tax.

TDS on Payment made with the Transfer of Digital Assets

The Union Budget 2022-23 also made TDS applicable on payments made in relation to the transfer of virtual digital assets. The government has set the TDS rate at 1% above a certain threshold. 

Introduction of RBI backed Central Bank Digital Currency (CBDC)

Along with defining the tax rules for virtual digital assets, the Finance Minister also revealed that the government will introduce a Central Bank Digital Currency (CBDC) based on blockchain technology and backed by the apex banking institution of the country, the Reserve Bank of India (RBI).  The new tax laws applicable for virtual digital currencies will be applicable as per the provisions made under the 115BBH sections, which are going to be introduced later. The amendment to the Indian Tax Act will come into force from April 1, 2023, and will be applicable for the AY 2023-24.