Cryptocurrencies: Cryptocurrencies as esops will be taxed as ‘gift’ under new tax law

Synopsis

Employees who received cryptocurrencies or other digital assets such as NFTs from crypto exchanges as part of their compensation package will face 30% tax on these as they will be defined as a “gift” under the new tax law and not salary or employee stock options (esops), say experts

This will be a difficult question to answer as coins are traded at different prices on different exchanges. And in the case of NFTs, the valuation is often an ambiguous issue.Mumbai: Employees who received cryptocurrencies or other digital assets such as NFTs from crypto exchanges as part of their compensation package will face 30% tax on these as they will be defined as a “gift” under the new tax law and not salary or employee stock options (esops), say experts

Many exchanges have rolled out their own tokens and offered these as part of their employees’ annual income-along the lines of esops. In some cases, it was also linked to employee performance and employees’ achieving certain targets. Tax experts say even if the employee hasn’t sold such coins, she will be required to cough up the tax during the assessment year.

“Unlike the esops tax regime where employees can first vest and then pay taxes on exercise, this beneficial regime is not available for cryptos received by employees. This will also mean that the employee will be required to pay 30% tax on the fair value of crypto assets she received from her employer even if she hasn’t sold them,” said Amit Maheshwari, tax partner at tax consultancy firm AKM Global.
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Not just that, in many cases, the employees may have to pay tax on higher amounts even when the price of such coins may have dropped since they received it.

“The issue is how to determine the fair value of virtual digital assets in the case of gifts or transactions that are not on the crypto exchange. The proposed set of provisions has not given the power to the tax department to make rules for taxing crypto and other virtual digital assets,” said Paras Savla, partner at KPB & Associates.

Indian tax laws take ‘fair value’ of assets into account while determining taxation. The question in such a transaction is: what is the fair value-the price at which the coins were issued, or the current price?

This will be a difficult question to answer as coins are traded at different prices on different exchanges. And in the case of NFTs, the valuation is often an ambiguous issue.

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Updated: 02/08/2022 — 23:00