Budget 2022: Will 30% tax on cryptocurrencies and NFTs apply retrospectively?

Finance minister Nirmala Sitharaman has proposed a 30 per cent tax on virtual digital assets with no deductions allowed. Moreover, there will be tax deducted at source (TDS) of 1 per cent above the threshold limit. This means that going forward one needs to pay flat 30 per cent tax, the way winnings from lotteries and game shows are taxed, on profits earned from virtual assets including cryptocurrencies and Non Fungible Tokens or NFTs. 

“Much needed clarity has been brought on taxation of cryptocurrency, NFT and other digital assets. If you sell such digital asset, gain can be calculated by reducing cost of purchase. Here no other expenses or deductions are allowed. Further, tax rate of 30 per cent has been proposed. This means no slab rate benefit can be availed,” says Sujit Bangar Founder Taxbuddy.com. 

However, in the absence of clear guidelines, many tax experts were classifying crypto gains as capital gains where long-term gain is taxed at 20 per cent and short-term gain
at the marginal rate. In the light of new regulations, however, crypto users are worried about the gains made in the past. Will the new tax rate apply retrospectively? 

“FM has not commenting on applicability of this retrospectively. May be government will bring more clarity on its impact on those who have reported in ITR for AY 2021-22,” said Bangar. 

“This is a stringent taxation regime. It appears that no set off of prior losses will be made available to taxpayers. However it will be clear from fine prints. The tax appears to be prospective from the budget speech.” said Amit Singhania, Partner at Shardul Amarchand Mangaldas & Co.

FM said in the Budget speech, “No deduction in respect of any expenditure (other than cost of acquisition) or allowance or set off of any loss shall be allowed to the assessee under any provision of this Act in computing the income referred to in clause (a) of sub-section (1); and (b) no set off of loss from transfer of the virtual digital asset computed under clause (a) of sub-section (1) shall be allowed against income computed under any other provision of this Act to the assessee and such loss shall not be allowed to be carried forward to succeeding assessment years."

BT had earlier reported that Budget expectations by tax experts where they suggested that crypto should be treated the way winnings from lotteries and game shows are taxed given the speculative nature of transactions. 

Taxmann’s report on expectations from the Union Budget 2022 stated, “Similar to winnings from Lottery, Game Shows, Puzzle, etc., a higher tax rate of 30 percent should be levied on the income arising from the sale of cryptocurrency. Moreover, both sale and purchase of cryptocurrencies above the threshold limit should be brought within the ambit of TDS/TCS provisions. This will help the government to get the footprints of the investors.”