Tax On Crypto in India: Guide On Crypto And NFT Taxation

Understanding the tax on crypto in India is an important aspect of managing your money efficiently. Therefore, here in this blog, we will help you to have a firm grasp of the taxation system for gifting cryptocurrency in India. You will learn about the various forms of cryptocurrency, the tax rules for gifting cryptocurrency, and the taxation system for NFT gifting.

Tax On Crypto in India: A Brief Overview

In India, cryptocurrency is commonly known as a Virtual Digital Asset (VDA). The regulations for taxing virtual currency, non-fungible tokens, and other VDAs were introduced in the Budget by the finance minister.

These regulations also cover the taxation of gifts involving cryptocurrency, NFTs, and similar assets. According to the Income Tax Act, the recipient is responsible for paying taxes on gifts of cryptocurrency, NFTs, and the like. 

For a more in-depth understanding of the taxation system for crypto gifting, please refer to the article below. 

Forms of Crypto Gifting

If you want to give cryptocurrency to someone as a gift then there are various ways to do so. You can use gift cards, paper wallets, or crypto tokens, and here's what each of these means:

1. Crypto Gift Cards: These are like gift cards you get for a specific store, but they're for cryptocurrency. You can buy these cards to give to your friends and family.

2. Crypto Paper Wallet: This is like a physical certificate that holds a private key and a Bitcoin address. It's a way to gift someone cryptocurrency in a tangible form.

3. Crypto Token: Also called a virtual currency token or cryptocurrency denomination, it's another form of giving cryptocurrency.

These options allow you to share the world of cryptocurrency with your loved ones in various ways.

Understanding the Taxes on Gifting Cryptocurrency

When it comes to gifting cryptocurrency, you need to consider the tax rules for both the giver and the recipient, especially when the recipient decides to sell the gifted cryptocurrency.

Tax for the Gift-Giver:

In the world of taxes, a digital asset like cryptocurrency is treated as a capital asset, as per Section 2(14) of the Income Tax Act. Capital gains tax usually applies when a capital asset is transferred. 

However, gifts are an exception to this rule, and they are not considered part of the "transfer" category under Section 47. This means that the person giving the gift, whether it's Bitcoin, an NFT, or any other virtual digital asset, is not required to pay taxes on it.

Tax for the Giver if the Recipient Sells the Gift:

If the recipient is the spouse or minor child of the gift-giver and decides to sell the gifted cryptocurrency, the income from the sale is combined with the gift-giver's income for tax purposes.

Tax for the Recipient:

Receiving a gift of cryptocurrency or selling it can have tax implications for the recipient.

Tax for the Receiver if the Gift Exceeds Rs. 50,000:

If the cryptocurrency gift is received from a non-relative and its value is more than Rs. 50,000, the recipient is subject to taxation. 

However, it's important to note that cryptocurrency gifts received during a wedding, inheritance, or in anticipation of death are exceptions and are not taxed in the same way. In these cases, such gifts are taxed at slab rates under the category "Income from Other Sources.”

Understanding these tax rules is essential for both gift-givers and recipients when it comes to cryptocurrency gifts.

Understanding Tax Implications When Selling Gifted Cryptocurrency

Selling or converting gifted Bitcoin can trigger capital gains tax. To calculate the tax on gifted cryptocurrency, it's essential to consider the following factors:

1. Period of Holding: Determine the duration the cryptocurrency was held from the date of purchase by the previous owner (the sender of the gift) to the date of sale by the recipient.

2. LTCG (Long-Term Capital Gains): This applies to Virtual Digital Assets (VDAs) held for more than 36 months from the sender's purchase date to the sale date.

3. STCG (Short-Term Capital Gains): If the VDA is held for up to 36 months from the sender's purchase date until the sale date, it falls under short-term capital gains.

4. Purchase Date: This is the date when the gift's sender originally purchased the cryptocurrency.

5. Purchase Value: It refers to the price paid by the gift's previous owner, who is also the sender of the gift.

6. Sale Date: This is the date when the recipient of the gift sells the cryptocurrency.

7. Sale Value: It represents the amount at which the recipient sells the gifted cryptocurrency.

8. Tax Liability: Without considering deductions for acquisition, improvement, or transfer expenses, the tax rate on the sale of cryptocurrencies is typically 30%.

These factors help determine the capital gains tax when selling gifted cryptocurrency, ensuring compliance with tax regulations.

 

Also Read: What is Professional Tax In India: Applicability, Exemptions & Penalties For Non-Payment of P-Tax

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