Festivals and giving go hand in hand, and the festivities are made even more joyful and rewarding when we offer presents to the people we care about most—our family, friends, and acquaintances.
Consider giving cryptocurrencies, non-fungible tokens (NFTs), other virtual digital assets (VDAs), and the like this holiday season if you want to give a present that stands out. However, you must take into account the tax implications of these assets in particular.
Nirmala Sitharaman, the Union Minister of Finance, suggested a 30% tax on VDAs on any income or transfer of digital assets in February 2022. This tax would not allow for any exemptions.
Now, this brings up two queries. Taxes on cryptocurrency gifts in what ways? And how would taxation operate if bitcoins and other digital assets are given to someone as a gift?
How Will You Tax Your Gifted Cryptocurrencies?
The Income Tax laws describe gifts in terms of taxation as follows. They comprise:
Any amount of money received (monetary gift)
Specifically described moveable property (gift of movable property) and specifically described movable property purchased at a discount (i.e., for inadequate consideration)
Immovable property obtained without payment (gift of immovable property) and immovable property purchased for a bargain.
According to Tarun Modi, a chartered accountant, and expert on crypto taxes, any giving of VDAs, such as cryptos and/or NFTs, will be taxable in the hands of the recipient if the total amount of gifts received within a year is greater than Rs 50,000.
Therefore, he says, “when 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 receiver’s hands, and the income tax needs to be discharged on the such gift.”
A present from an immediate relative, such as a parent, spouse, mother, or another person, is excluded, according to Modi.
If your buddy gives you Rs. 30,000 to assist you in purchasing a new camera, for instance, you are not now liable for paying taxes on that amount. However, if you receive Rs. 25,000 from a different friend a few months later to pay for a vacation and then another Rs. 5,000 from a different friend around Diwali, your total gifts received (Rs. 60,000) would now exceed the Rs. 50,000 barriers and be subject to taxation.
“If you don’t elect to return the money during the same tax year, this will be put to the list of “Income from Other Sources” and taxed according to your tax bracket. The value of material presents over Rs. 50,000 is also taxed similarly, according to Archit Gupta, founder, and CEO of Clear, a company that provides tax filing assistance.
What Happens If Employers Give You Gifts?
Gupta asserts that any holiday-season tax payments made to employees, including those made around Diwali, would be taxable income for those workers. Gifts received as rewards or sometimes are also taxed, much as entirely taxable performance bonuses.
“On presents received in cash or kind from the employer, you are entitled to an exemption of up to Rs 5,000. A member of the employee’s family or the employee himself may get these, he continues.