Exchanging gifts during Diwali has become part and parcel of the festival as it brings a smile to our face. As people celebrate, they exchange sweets and gifts with their relatives, friends, and colleagues, whereas in offices, employees are given bonuses, sweets or gifts. At this hi-tech age, many people are also planning to gift something more unique to their near ones such as non-fungible tokens (NFTs), cryptocurrencies, or other virtual digital assets (VDAs) during Diwali. Certain gifts received can attract tax under the existing Income Tax (I-T) law. So, apart from monetary gifts, people should also keep in mind the taxation part of NFTs and cryptos received as gifts.
What does the law say?
Indian I-T Act says that tax can be levied on some gifts depending on their value and from whom you received them. Some gifts fall under the exempted category while some don’t. If any gift item doesn’t fall under the exempted category, the person receiving it will have to disclose it during the time of filing the Income Tax Return (ITR). Under Section 56(2) of the I-T Act, if the total value of gift items exceeds Rs 50,000 in a financial year, it will be taxed.
Category of gifts
Gifts can be broadly divided into two sections: cash and kinds. Depending on the nature of the gifts, they are further classified into several categories.
If someone receives gifts in cash, draft or cheque, it will be treated as monetary gift, hence, will attract tax. However, there is a catch. Every gift in cash or cheque will not be taxed until and unless the total value doesn’t exceed Rs 50,000 in a financial year.
If an individual gets a gift in the form of land or building, it will be considered immovable property. It can become taxable if the stamp duty value of the immovable property exceeds Rs 50,000.
On the other hand, gifts such as jewellery, paintings, shares, securities, etc. are considered movable properties and can be taxed if the fair market value of the above-said items crosses Rs 50,000. In this regard, it has to be remembered, jewellery is always taxable, however, a motor car given as a gift doesn’t come under the purview of movable property, therefore cannot be taxed.
Finance Minister Nirmala Sitharaman in her Union Budget speech this year announced that from April 1 all forms of VDA or crypto assets that are sold at a profit will attract a tax of 30 per cent. Simultaneously, all crypto transactions will be subject to a 1 per cent tax deducted at source (TDS). Hence, gifting VDAs will attract tax.
A panel of experts on VDAs has expressed their views on the taxation aspect of the Diwali gifts.
Sathvik Vishwanath, co-founder and CEO, Unocoin
“Due to the new income tax regime that is in effect from April 1, 2022, all the crypto gifts get taxed at 30 per cent straight irrespective of the income tax slab an individual would fall under. The income department is classifying these as Virtual Digital Assets. As NFT are also seen as belonging to the same category, the same taxation should apply as well. While there are some exemptions for gifts in categories like blood relative, received during marriage, inheritance or through a Will, such exemptions are not given for gifts received in the form of crypto or NFTs. The specific income tax rules for crypto were introduced in April for the first time in India and this may need to go through amendments in the subsequent years making it more practical to get gifts though crypto as well like any other fixed or movable assets.”
Prashant Kumar, founder and CEO, weTrade
“This Diwali, crypto and NFTs have the potential of being distinctive gifts. However, the ecosystem for such gifts is still being worked on. The same tax implications that apply when an individual purchases crypto would apply in the case of gifts too. In line with the announcements made in the budget this year, income from digital assets will be taxed at 30 per cent and 1 per cent TDS will also apply. However, the tax implications would have to be borne by the receiver.”
Yash Pariani, CEO and founder, House of Gaming
“NFTs and digital assets play a significant role in web3 which is the next iteration of the Internet. We are already starting to become familiar with the application of web3 tech such as 5G & Internet of Things (IoT) in our daily lives through our wearables and smart devices. As long as the people involved are aware of the use cases of their digital collectible or token, understand the volatility of the market and are aware of our tax laws regarding the transfer of an asset, NFTs would make for a great Diwali present. Digital art and unique collectibles currently make up a majority of the NFT marketplace, but it is only the tip of the iceberg as the possibilities for real-world applications of NFTs are endless.”