How Is Income From Virtual Digital Assets (VDAs) Such As Cryptos, Non-Fungible Tokens (NFTs) Taxed?  

In India, cryptocurrencies are classified as virtual digital assets and are subject to taxation. Gains from trading cryptocurrencies are taxed at a rate of 30 per cent plus a four per cent cess, according to Section 115BBH of the Income Tax Act. Section 194S levies one per cent Tax Deducted at Source (TDS) on the transfer of crypto assets from July 1, 2022, if the transactions exceed Rs 50,000 (or Rs 10,000 in some cases) in the same financial year.
 
The crypto tax applies to all private or commercial investors who transfer digital assets during the year. The tax rate is the same for short-term and long-term gains and applies to all types of income the investor earns from cryptos. Therefore, gains from trading, selling, or swapping cryptocurrency will be taxed at a flat 30 per cent plus a four per cent surcharge, irrespective of whether the income is treated as capital gains or business income. Other than this tax, one per cent TDS will also apply to the sale of crypto assets of more than Rs 50,000 (or Rs 10,000 in some instances).
 
Information Required For Scheduling A VDA For Taxation
 
Several vital data points need to be considered to calculate taxation for cryptocurrencies. Avinash Polepally, senior director and crypto business head at ClearTax, explains, “To determine the taxation on virtual digital assets, certain information needs to be provided in the schedule for VDA.” 
 
The following details are essential for accurate tax calculation:
 
Date Of Acquisition: “The date of acquisition of the cryptocurrency is essential as it determines the holding period and potential tax implications. This information helps classify the gains as either short-term or long-term capital gains,” adds PolePally. 
 
Date Of Sale Or Disposal: The cryptocurrency’s sale or disposal date is crucial for determining the timing of the taxable event. It helps establish the applicable tax rates based on the holding period.
 
Transaction Proceeds: The transaction proceeds refer to the amount received in exchange for the cryptocurrency during the sale or disposal. This value is used to calculate the gross income from the transaction.
 
Gains Or Losses: “It is necessary to determine the gains or losses arising from crypto transactions. This involves calculating the difference between the sale proceeds and the cost basis of the cryptocurrency. The resulting amount determines the taxable income or capital gains tax owed on the transaction,” adds PolePally.
 
By considering these factors, tax authorities can accurately assess the taxable income or capital gains tax owed on cryptocurrency transactions. Individuals and businesses involved in cryptocurrency trading must maintain detailed records and provide accurate information to comply with tax regulations effectively.
 
As the cryptocurrency market continues to evolve and gain popularity, tax authorities around the world, including India, are adapting their regulations to ensure proper taxation of virtual digital assets. Investors and traders need to stay updated with the latest tax guidelines and seek professional advice, if required, to meet their tax obligations accurately.