TAX ON DIGITAL ASSETS UNDER INCOME TAX ACT

TAX ON DIGITAL ASSETS UNDER INCOME TAX ACT

TOPIC: Economy

Context- Finance Minister Nirmala Sitharaman has proposed to tax all profits from transactions in such assets at 30% along with the applicable surcharge and cess, and a 1% tax to be deducted by buyers while trading in any virtual digital asset beyond a threshold.

Concepts-

• Finance Minister introduced 30% income tax on returns of virtual and digital currencies.
• also introduced 1% TDS on digital assets.
• Taxation of Virtual Digital Assets is being clarified by inserting Section 115 BBH in the Income Tax Acte. Income from sale of virtual digital asset such as cryptocurrency, NFT etc would be taxed at base rate of 30 percent.

Capital Gains

• This gain or profit comes under the category of ‘income’.
• Hence, the capital gain tax will be required to be paid for that amount in the year in which the transfer of the capital asset takes place. This is called the capital gains tax, which can be both short-term and long-term.
• Long-term Capital Gains Tax:
  • It is a levy on the profits from the sale of assets held for more than a year. The rates are 0%, 15%, or 20%, depending on the tax bracket.
• Short-term Capital Gains Tax:
  • It applies to assets held for a year or less and is taxed as ordinary income.
• Capital gains can be reduced by deducting the capital losses that occur when a taxable asset is sold for less than the original purchase price. The total of capital gains minus any capital losses is known as the “net capital gains”.
• Capital assets are significant pieces of property such as homes, cars, investment properties, stocks, bonds, and even collectibles, digital assets or art.