Taxation of digital assets announced in Budget 2022

Budget 2022 announces taxation of digital assets

Digital assets taxation announced in budget 2022

As of now, no law in India forces you to pay taxes when you make money by selling digital assets. However, that is now going to change. In her Union Budget 2022 speech, the Finance Minister has said that the government is now going to tax digital assets.

In this article, we will discuss the digital asset taxations announced in the recent budget. In addition, for those unaware, this article will share important highlights on digital assets, what they are, why and how their tax rules, etc.

What are digital assets?

By definition, digital assets are any digital material owned by you, including text, video, animations, audio, and graphics. Earlier, only videos and photos were considered digital assets, but now there is much more to digital assets. For example, cryptocurrency and even the NFTs come under digital assets. However, the definition (what all comes under it) of digital assets for taxation purposes can be different.

Also Read: From Digital Rupee To Extended ECGLS, All That's New In Budget 2022

How much is the taxation on digital assets?

As mentioned above, crypto was not in the tax regime. However, in the last year, the investment in digital assets and the total transaction have increased exponentially. Hence, the government had to bring digital assets into the tax regime.

The government has announced a flat 30% on income from digital virtual assets, including cryptocurrency. Crypto experts have welcomed the move by the government. Below are a few key points:

  • The taxation is flat 30%, unlike the traditional taxation, which is slab-based. 
  • The Finance Minister proposed to have a TDS (Tax Deducted At Source) on payment made for digital assets, which would be deducted at a rate of 1%.
  • If you gift someone a digital asset, it will also be taxed.
  • There will be no offset in case of losses. You pay taxes on the net gains in other investment instruments like equity. For example, if you made a profit of Rs 4,00,000 and a loss of Rs 1,50,000 in a financial year. Your net profit in the financial year is Rs 2,50,000. Hence, you pay taxes on the net profit. However, in the case of digital assets, you cannot offset the losses; hence, if the above profit and loss statement was for the digital asset, you will need to pay 30% tax on Rs 4,00,000. Digital assets are no longer an attractive financial instrument to make money, especially for short-term investors (and traders).

Does taxation make digital assets legal?

The cryptocurrency in India is not a legal entity. Post the taxation announcement, some investors have started assuming that with taxation, cryptocurrencies are legal in India. However, the finance ministry has clearly stated post the budget that taxation does not make crypto legal in India. Cryptocurrency continues to remain unregulated in India.

What should investors do?

There is still not 100% clarity on the definition of digital assets from the government side. However, cryptocurrencies are undoubtedly part of it. Considering that digital assets aren't regulated, investors should allocate just a small fraction of their total portfolio to them.

Consider the taxation when you buy and sell any digital asset. But, again, no offset for losses is the key here - don't forget that in your calculations.

As of now, no law in India forces you to pay taxes when you make money by selling digital assets. However, that is now going to change. In her Union Budget 2022 speech, the Finance Minister has said that the government is now going to tax digital assets.

In this article, we will discuss the digital asset taxations announced in the recent budget. In addition, for those unaware, this article will share important highlights on digital assets, what they are, why and how their tax rules, etc.

What are digital assets?

By definition, digital assets are any digital material owned by you, including text, video, animations, audio, and graphics. Earlier, only videos and photos were considered digital assets, but now there is much more to digital assets. For example, cryptocurrency and even the NFTs come under digital assets. However, the definition (what all comes under it) of digital assets for taxation purposes can be different.

Also Read: From Digital Rupee To Extended ECGLS, All That's New In Budget 2022

How much is the taxation on digital assets?

As mentioned above, crypto was not in the tax regime. However, in the last year, the investment in digital assets and the total transaction have increased exponentially. Hence, the government had to bring digital assets into the tax regime.

The government has announced a flat 30% on income from digital virtual assets, including cryptocurrency. Crypto experts have welcomed the move by the government. Below are a few key points:

  • The taxation is flat 30%, unlike the traditional taxation, which is slab-based. 
  • The Finance Minister proposed to have a TDS (Tax Deducted At Source) on payment made for digital assets, which would be deducted at a rate of 1%.
  • If you gift someone a digital asset, it will also be taxed.
  • There will be no offset in case of losses. You pay taxes on the net gains in other investment instruments like equity. For example, if you made a profit of Rs 4,00,000 and a loss of Rs 1,50,000 in a financial year. Your net profit in the financial year is Rs 2,50,000. Hence, you pay taxes on the net profit. However, in the case of digital assets, you cannot offset the losses; hence, if the above profit and loss statement was for the digital asset, you will need to pay 30% tax on Rs 4,00,000. Digital assets are no longer an attractive financial instrument to make money, especially for short-term investors (and traders).

Does taxation make digital assets legal?

The cryptocurrency in India is not a legal entity. Post the taxation announcement, some investors have started assuming that with taxation, cryptocurrencies are legal in India. However, the finance ministry has clearly stated post the budget that taxation does not make crypto legal in India. Cryptocurrency continues to remain unregulated in India.

What should investors do?

There is still not 100% clarity on the definition of digital assets from the government side. However, cryptocurrencies are undoubtedly part of it. Considering that digital assets aren't regulated, investors should allocate just a small fraction of their total portfolio to them.

Consider the taxation when you buy and sell any digital asset. But, again, no offset for losses is the key here - don't forget that in your calculations.

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