- 15-Apr-2025
- Healthcare and Medical Malpractice
The taxation of digital assets like NFTs (Non-Fungible Tokens) and cryptocurrencies when given as gifts is an evolving area of tax law. In India, the tax treatment of such digital assets depends on their nature as assets, how they are classified (i.e., capital assets or property), and whether they are subject to gift tax or capital gains tax. It is important for both the donor (giver) and the recipient (receiver) to understand the potential tax obligations when gifting digital assets.
Under Section 56(2) of the Income Tax Act, gifts given to relatives (such as family members) are exempt from gift tax. Digital assets, such as cryptocurrencies or NFTs, if gifted to a relative, will not attract gift tax regardless of their value.
If digital assets like NFTs or cryptocurrencies are gifted to someone who is not a relative (as defined under the Income Tax Act), the value of the gift may be subject to gift tax if the total gift amount exceeds Rs. 50,000 in a financial year. The recipient will be liable to pay income tax on the amount received above this threshold.
Example: If a non-relative receives a cryptocurrency gift worth Rs. 1 lakh, they will be subject to tax on the amount exceeding Rs. 50,000 (i.e., Rs. 50,000), which will be taxed as income from other sources.
When a person gifts digital assets like cryptocurrencies or NFTs, there are no immediate capital gains tax implications for the donor at the time of gifting, as the transaction is treated as a gift, not a sale. However, if the donor sells the assets prior to gifting them, capital gains tax would apply to the profits made from the sale.
The recipient of the gift takes over the holding period of the digital asset from the donor (i.e., the original purchase date), which impacts the calculation of capital gains tax when the recipient later sells the asset. If the digital asset is held for a longer period (typically more than one year), it may qualify for long-term capital gains tax.
Example: If a donor gifts cryptocurrency that they purchased a year ago for Rs. 50,000 to the recipient, and the current market value is Rs. 1 lakh, the recipient will take the Rs. 50,000 purchase price as their cost basis. If the recipient later sells it for Rs. 1.5 lakh, they will pay capital gains tax on Rs. 1 lakh (the difference between the selling price and the cost basis).
NFTs (Non-Fungible Tokens) are digital assets often associated with art, music, or collectibles. When gifted, NFTs may be treated as property under Indian tax laws, and the capital gains tax provisions would apply when the recipient eventually sells the asset.
If the recipient decides to sell the NFT later, the gain will be subject to capital gains tax. The capital gains tax rate will depend on whether the asset is considered long-term or short-term, based on the holding period.
Example: If a person gifts an NFT worth Rs. 2 lakh to their friend, and the friend sells the NFT later for Rs. 4 lakh, the capital gains tax will be calculated on the difference of Rs. 2 lakh, and it will be taxed based on the holding period.
For tax purposes, cryptocurrencies and NFTs are treated as property or capital assets. Thus, they are subject to the capital gains tax regime when sold or transferred. However, since gifting does not trigger the sale or transfer of the asset, there will be no capital gains tax for the donor when gifting.
Once the recipient receives the digital asset, they will be liable for capital gains tax when they sell or transfer the assets. If the asset has appreciated in value, they will have to pay capital gains tax based on the difference between the selling price and their cost of acquisition.
GST does not typically apply to the gifting of cryptocurrencies or NFTs, as these are not treated as goods or services but rather as assets. However, if the gifted assets are later sold by the recipient and GST is applicable to the sale of the underlying goods or services, the recipient might be liable for GST on any applicable transactions.
While the Income Tax Act does not specifically require reporting of gifts to relatives (if exempt from gift tax), the recipient may need to report the digital asset gift on their income tax return under income from other sources if the gift exceeds the Rs. 50,000 threshold and is from a non-relative.
It is essential to accurately report the value of the digital assets received, particularly if the assets have appreciated significantly.
Mr. Verma gifts Bitcoin worth Rs. 5 lakh to his daughter, and the total gift is within the exemption limit (as it's a gift to a relative). There is no gift tax applicable on this transfer. However, if the daughter later sells the Bitcoin for Rs. 8 lakh, she will be subject to capital gains tax on the Rs. 3 lakh gain.
Mr. Gupta gifts a digital artwork NFT worth Rs. 1 lakh to a close friend. Since the gift is to a non-relative, the recipient will have to report the gift on their income tax return if the value exceeds the Rs. 50,000 threshold. If the NFT is later sold for Rs. 3 lakh, the recipient will pay capital gains tax on Rs. 2 lakh, based on the original acquisition cost.
Mr. Joshi gifts Ethereum worth Rs. 70,000 to a friend. Since the gift exceeds the Rs. 50,000 threshold, the friend will need to report it as income from other sources and will be taxed on the Rs. 20,000 (amount exceeding Rs. 50,000). If the recipient sells the Ethereum later, the capital gains tax will apply based on the acquisition cost.
The taxation of digital assets like NFTs and cryptocurrencies when gifted depends on the relationship between the donor and recipient, the value of the gift, and the tax laws applicable in the jurisdiction. Gifts to relatives are typically exempt from gift tax, but gifts to non-relatives may be subject to income tax if they exceed the exemption threshold. Additionally, the recipient will be subject to capital gains tax when they later sell the gifted asset, based on the holding period and the profit made from the sale. It is important to consider both gift tax and capital gains tax implications when planning to gift digital assets.
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