Before investing, know about the Tax on Cryptocurrency in India

Budget 2022 tax announcements for cryptocurrency in India from FY22–23

• Tax @ 30% on Digital Assets: The gain on the sale of cryptocurrency would be taxed at a 30% tax rate. This taxation would certainly impact post-tax returns of cryptocurrency transactions. Only deduction from sale consideration can be the ‘cost of acquisition of cryptocurrency’. There won’t be any other expenses allowed to be deducted. Due to no set-off of loss from other sources of income, it will become very challenging to have a net profitable trade in cryptocurrency.
• TDS on cryptocurrency transactions: TDS @1% has been proposed for transactions involving cryptocurrency. We may sell cryptocurrency at a profit or loss but TDS @1% would certainly happen. We can claim a refund of TDS done on transaction involving loss. Therefore, it would be recommended to file an income tax return if you have entered into transactions in cryptocurrency.

If you have purchased crypto for ₹15k and sold it for ₹45k, your straightforward gain is ₹30k.

It would be taxed as under :

Sale consideration ₹45k

Less cost of acquisition ₹15k

Taxable gain ₹30k

Income Tax of 30% on ₹30k is ₹9k + 1% TDS is ₹300

• The threshold limit for TDS would be ₹50,000 a year for specified persons, which includes individuals/HUFs who are required to get their accounts audited under the I-T Act.
• The provisions related to 1 per cent TDS will come into effect from July 1, 2022, while the gains will be taxed effectively April 1, 2022.
• In addition, investors cannot get any deductions and won’t be allowed to set off losses from transfer of such assets against any other income except the cost of acquisition.
• Under the bill, section 115BBH deals with taxes on virtual digital assets (VDA), while clause (2)(b) prohibits setting off a loss from crypto assets against income under “any other provision” of the IT Act. Also, the word “other” is dropped for VDAs under the bill.
• The Finance Act 2022 has inserted a new section for the taxation of virtual digital assets. Effective April 1, 2022, any income from the transfer of a virtual digital asset is proposed to be taxed at a flat rate of 30%. It has been further clarified that any loss incurred during the transfer of a virtual asset would not be allowed to be set off against any income (including gain from a sale of another virtual digital asset) under any provision of the act. Only the cost of acquiring such an asset can be claimed in this computation.
• This would mean that loss from the transfer of virtual digital assets (VDA) will not be allowed to be set off against the income arising from the transfer of another VDA.
• Crypto received as a gift would be taxable: If you receive a gift in form of cryptocurrency or any other virtual digital asset, it would be liable for taxation as a gift post-budget 2022.
• As a disclosure requirements the taxpayers will have to report income from crypto through a separate column while filing I-T returns.
• RBI-backed ‘digital rupee’ to be launched in FY23.

Conclusion: The higher tax rate also hints at tougher crypto regulations & government wants people to be aware of the higher volatility & risk into crypto market before investing into crypto.

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