scorecardresearchCryptocurrencies as ESOPs would be taxed as 'gift' at 30 percent, says report

Cryptocurrencies as ESOPs would be taxed as 'gift' at 30 percent, says report

Updated: 09 Feb 2022, 12:46 PM IST
TL;DR.

Free crypto tokens given by crypto exchanges to employees will attract 30 percent tax as they would be treated as ‘gift’. Read further to know more on this

Several crypto exchanges often give digital tokens to their employees as part of their compensation as ESOPs.

Several crypto exchanges often give digital tokens to their employees as part of their compensation as ESOPs.

Employees who received cryptocurrencies or other virtual assets including NFTs from crypto exchanges as their compensation package will be supposed to pay 30 percent of tax as ESOPS would fall under the bracket of gift, instead of salary, say experts, reported Economic Times.

Several exchanges often give these tokens to their employees as part of their compensation. These are treated as ESOPs. But with change in taxation law, the free crypto tokens – since they are not given in Indian currency or in stocks whose price is determined in a fiat currency – they will be treated as free cryptos given as gifts. The experts believe that even if employees decide to hold the tokens, they will be liable to pay tax, the report said.

What may irk some of the crypto enthusiasts is that the employees will be made to pay a higher tax even if the value of those tokens happens to decline later, it further said.

The tax laws consider the ‘fair value’ of assets while determining the tax liability. But the larger question that arises is how can one determine the ‘fair price’ — the price at which the tokens were issued, or the current prices of these tokens?

This will not be an easy question to answer since different exchanges price crypto assets at different rates and when it comes to NFT, it is determined solely by a matrix of demand and supply for the digital asset.

It is worth nothing that Union Finance Minister Nirmala Sitharaman, during the Union Budget 2022 speech, announced to levy tax on the transfer of digital assets such as cryptocurrencies and NFTs at the rate of 30 percent. She attributed the decision to "a phenomenal increase in transactions in virtual digital assets" which made it imperative to provide for a specific tax regime. 

Besides, no exemptions or deductions will be allowed on the profit, the FM had announced during the budget speech.

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First Published: 09 Feb 2022, 12:43 PM IST