Everything you need to know about NRIs and crypto taxation in India explained in detail

Cryptocurrencies have been dubbed "Virtual Digital Assets" in India, and NFTs have also been incorporated into the definition of Virtual Digital Assets in addition to cryptocurrencies. Before the budget for 2022, there was some uncertainty regarding the taxability of virtual digital assets; however, after the budget and subsequent clarifications and frequently asked questions (FAQs) published at various points by the Income Tax department, the taxation of virtual digital assets has become clearer. In this article, we have explained everything you need to know about NRIs and crypto taxation in India. Read to know about crypto taxation in detail.

Let's explore the numerous aspects of virtual digital asset taxes:

What are Virtual Digital Assets?

A virtual digital asset is any code or token that is created using cryptographic techniques and serves as a value store. It might make a claim or guarantee that it has value inherently.

It might make a claim or guarantee that it has value inherently. Non-Fungible Token is a type of virtual digital asset. It excludes, however, gift cards, certificates that can be used to purchase products or services at a discount or for nothing, and subscriptions to websites or platforms.

The proceeds from the sale of virtual digital assets appear to fall within the headings of income from capital gains or even from income from business and profession. However, neither of the income heads will affect how the tax is treated. While Income from Business and Profession contains modifications of the income and expense of cryptocurrency in schedule BP, Schedule VDA has been placed under the heading Capital Gains.

Calculating the Gains: Only the purchase cost must be subtracted from the selling price when calculating the gains from the VDA transaction. Any additional costs, such as those related to selling or mining, are not tax deductible. Additionally, it is not possible to subtract mining infrastructure costs from the gains from VDA trades.

Setoff for Losses: Each VDA should be viewed as a distinct asset class. Therefore, a loss from one VDA's transaction cannot be used to offset gains from another VDA's transaction. For instance, if a person transfers Ethereum and makes a loss of Rs. 70,000 but gains Rs 1,000,000 on Bitcoin, he must pay taxes on the gains of Rs. 1,000,000 on Bitcoin.

If there are no gains from the transfer of Ethereum, the loss of Rs. 70,000 will be used up. The loss of Ethereum will not be utilized to offset the gains of Bitcoin.

Gains from the Transfer of VDA are Taxed: Gains from the Transfer of VDA are subject to a 30% tax rate, which must be augmented by the Health and Education Cess and surcharge, if necessary. Additionally, because the tax rate is a special rate of tax, it is not eligible for the benefits of the standard exemption limit.

What will be his Tax Liability?

In this instance, total income (excluding income from VDA) is less than Rs. 2,50,000, which is the upper limit of income exempt from taxation. Tax on income from sources other than VDA is therefore nonexistent. Tax on VDA Income is Rs. 12,000

Additionally, if someone receives a present in the form of a VDA, that gift may be subject to gift tax under section 56 of the Income Tax Act. When VDA is received as a gift rather than in exchange for anything and its total fair market value exceeds Rs. 50,000, the entire amount of the VDA will be subject to tax. Additionally, the difference between fair market value and the price paid is subject to tax when any property is acquired for a sum that is greater than Rs. 50,000 less than the total VDA fair market value.