Festivals and gifting come hand-in-hand, and the celebrations feel all the more joyous and fulfilling when we give gifts to our loved ones – our family, relatives, friends, and acquaintances.
This festive season, if you are planning to gift something unique, you could consider cryptocurrencies, non-fungible tokens (NFTs) and other virtual digital assets (VDAs), and the like. That said, you need to specifically consider the taxation aspect for these assets.
In February 2022, Union Minister of Finance, Nirmala Sitharaman proposed a 30 per cent taxation on VDAs on any income or transfer of digital assets without allowing for any deductions.
This raises two questions now. How will crypto gifting be taxed? And how will taxation work in case cryptocurrencies and other digital assets are received as gifts?
In terms of taxation, gifts are defined as follows under the Income Tax regulations. They include:
Any sum of money received (monetary gift)
Specified movable properties (gift of movable property) and specified movable properties received at a reduced price (i.e., for inadequate consideration)
Immovable properties received without consideration (gift of immovable property), and immovable properties acquired at a reduced price.
Tarun Modi, chartered accountant, and a crypto taxation consultant says that under Section 56 (2) of Income-tax Act, 1961, any gifting of VDAs, such as cryptos and/or NFTs will be taxable in the hands of the receiver if the total value of gifts received within a year is more than Rs 50,000.
“Therefore, while receiving gifts in the form of cryptos or NFTs, one must assess the fair market value of those gifts, and if the cumulative value of these gifts is more than Rs. 50,000, then the same is taxable in the hands of the receiver, and the income tax needs to discharged on such gift,” he says.
Modi adds that there is an exemption when such gift is received from an immediate relative, such as father, spouse, mother and so on.
For instance, if you receive Rs. 30,000 from your friend to help you buy a new camera, there is no tax liability for you at this stage. But if after a few months, if you receive Rs. 25,000 from another friend, to fund a leisure trip, and then closer to Diwali, another Rs. 5,000 from another friend, then the total gifts received (Rs. 60,000), having cross the threshold of Rs. 50,000, will be taxable.
“This will be added under the head ‘Income from Other Sources’ and taxed according to your tax slab, unless you decide to return the money in the same tax year. Material gifts exceeding Rs. 50,000 in value are also taxed similarly,” says Archit Gupta, founder and CEO, Clear, a tax filing assistance firm.
According to Gupta, any tax given to an employee during the festive season, which would include Diwali, too, would be taxable for the employee. Similar to a performance bonus, which is fully taxable, gifts that are received as awards or on occasion, are taxed, as well.
“An exemption of up to Rs 5,000 is allowed to you on gifts made in cash or kind by the employer. These may be received by the employee himself or by a member of his family,” he adds
