Taxation On Cryptocurrency
There was a time when we used to laugh on cryptocurrency in the start but it has now taken investors all over the world for a spin!
The cryptocurrency market in India is expanding the quickest in the globe. Its development rate has been faster than that of some other countries in recent years, and it has done so at a rapid rate. If India continues on this way, experts believe it will have a significant impact on the development of cryptocurrencies.
Due to India's local community and decision-making government, the future of cryptocurrencies in the country is looking fantastic as the Indian government participates actively.
There have been many recent developments in the taxation on cryptocurrency in India, lets have a look at it!
The Hon. Finance Minister Mrs. Nirmala Sitharaman has announced radical changes to the virtual asset class in the Budget 2022. The government has now formally referred to digital assets, including cryptocurrency holdings, as "Virtual Digital Assets". These include all forms of cryptocurrency, including Bitcoin, Ethereum, and other digital assets like Non-fungible token (NFTs).
These are the considerations that any cryptocurrency investor should bear in mind, even though there are still a lot of discussions that the Indian Government needs to have with the Indian populace regarding the regulations it will set for "Virtual Digital Assets," in accordance with the Budget 2022 session.
At the end of each fiscal year, income from the transfer of virtual digital assets like cryptocurrency and NFTs will be subject to a 30% tax.
When declaring revenue from the transfer of digital assets, there will be no deductions permitted outside the cost of purchase.
Digital asset losses cannot be offset by any other income.
The recipient of a digital asset gift will be subject to tax. It is not possible to offset losses from one virtual digital currency against gains from another. This list of recommendations should also include the 1% TDS point, which was stated in Budget 2022.
As per Income-Tax Act of 1961 Section 206AB:
The tax (TDS) that must be deducted on cryptocurrency-related transactions will be 5% if any user has not filed an income tax return in the preceding two years and the amount of TDS in each of those two years was at least $50,000.
TDS requirements will be in effect if an order is placed before July 1, 2022, but the trade is performed on or after that date.
HOW IS INDIA'S 30% CRYPTO TAX CALCULATED?
There are no distinctions between short-term and long-term gains when applying the flat income tax rate to retail investors, traders, or anybody moving cryptocurrency assets in a given fiscal year. Any gains derived through the transfer of virtual assets will be subject to a 30% tax rate.
For Example : If a cryptocurrency investment of INR 1,00,000 was made at the start of FY2022, and by the end of FY2022, the cryptocurrency was sold for INR 1,50,000, a flat 30% cryptocurrency tax would be due on the INR 50,000 in income gain. As an investor, you will be required to pay INR 15,000 in tax on your cryptocurrency revenue for that fiscal year (plus surcharge and cess).
It should be highlighted that any income from cryptocurrency transactions will only be taxed at the time of transfer, so long as the asset is held, the holding will not be subject to tax on unrealized profits.
CAN WE AVOID INDIA'S 30% CRYPTO TAX?
No, It is illegal to avoid taxes, and the government's tax policies on cryptocurrencies are extensive. The goal of cryptocurrency exchanges has been to provide a regulatory-compliant environment where all transactions and investments are documented and transparent to the tax authority.
TDS OF 1% ON CRYPTO ASSETS
The 1% TDS is applied on all sale transactions of the crypto assets, according to the updated Income Tax Regulations. This will go into effect on July 1st, 2022. Please be aware, though, that the TDS will be subtracted from the total sale amount rather than simply the profits. It makes no difference to TDS whether you turn a profit or a loss on your trade. It will always be subtracted.
ARE CRYPTO PROFITS CLASSIFIED AS CAPITAL GAIN?
Profits from cryptocurrency-related transactions that qualify as investments will be counted as capital gains.
IN THE EVENT OF CAPITAL LOSSES:
If your cryptocurrency-related transactions have caused losses, there are still no specific tax regulations in place.
IF CLASSIFIED AS AN INCOME FROM A BUSINESS:
The Goods and Services Tax (GST) law's implications for crypto transactions reported as company income must also be considered.
IF TREATED AS BUSINESS INCOME, GST ANGLE
Anything other than commodities, securities, and money is referred to as a "service." It comprises actions involving the use of money or its conversion into cash or into any other form of payment that requires a separate consideration. According to this definition, since the purchase and sale of crypto tokens constitutes the supply of goods or services, GST may become relevant.
IF CLASSIFIED AS OTHER SOURCES OF INCOME:
When someone files out an ITR form, cryptocurrency holdings are also listed as "other sources of income." It is imperative to declare gains in the ITR and pay taxes on them even though the income tax agency has not provided any clarification.