Flat 30% tax on any income from transfer of crypto and other virtual digital assets (VDAs), including metaverse tokens and NFTs, has become effective from April 1, 2022. The new tax rule and the proposed 1% TDS on transfer of VDAs from July 1st have taken the shine away from the lucrative crypto markets in India. The effects of these tax announcements could be seen in dropping trade volumes at major crypto exchanges in India.
However, crypto, metaverse and NFTs are expected to drive the world into a new era of technology, also popularly referred to as Web3. In such a case, does it makes sense to invest in metaverse and NFTs now, while knowing any income from them would be taxed at the rate of 30%?
Experts suggest that one should invest in a virtual asset only if they believe it holds value.
“For those who believe that crypto-assets hold value, it makes sense to trade in them notwithstanding the 30% crypto-tax, since they will be liable to pay this tax only if they make a profit from out of their crypto-trades,” Vinod Joseph, Partner at Argus Partners law firm, told FE Online.
However, VDAs are extremely volatile, uncertain and unregulated. Hence, traditional instruments like mutual funds may hold more significance for investors looking at some sort of surity.
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“For most retail investors looking for long term and predictable gains, mutual funds or index funds still remain the best option. The crypto frenzy brings with it a lot of short term speculators and a flurry of pump-and-dump issues that can hurt retail investors who unreasonably expect an endless upward rally in crypto,” said Utkarsh Sinha, managing director at Bexley advisors.
How will 30% tax on VDAs work?
The 30% tax applies to income received from the transfer of virtual digital assets or cryptocurrencies. For this tax to apply, the assessee should have made a profit from the transfer of VDAs.
“A seller would not have to pay this tax if the sale is at a loss, that is, at a price lower than the original purchase price. Since the highest tax rate in India is 30%, this tax is not such a big deal,” said Vinod Joseph.
“The only hitch is that, even if a person’s net income is not taxable at 30%, if the assessee has made a profit through the trade of crypto assets, such profit is taxable. Assessees cannot set off the profit from trading cryto-assets against other income streams. It does not matter if the crypto assets are sold through an overseas exchange. As long as the assessee is an Indian resident , this tax will apply,” he added.
(Cryptos and other virtual digital assets are unregulated assets in India. Investing in them could lead to losses. Please consult a professional financial advisor before making any investment decision in crypto)