Here's All You Need to Know About Crypto Tax in India

According to the Union Budget 2022-23 Memorandum, "The proposed section 115BBH seeks to provide that where the total income of an assessee includes any income from transfer of any virtual digital asset, the income tax payable shall be the aggregate of the amount of income-tax calculated on the income of transfer of any virtual digital asset at the rate of 30%. The amount of income-tax with which the assessee would have been chargeable had the total income of the assessee been reduced by the aggregate of the income from transfer of virtual digital asset."

The introduction of a high Crypto tax in India has disappointed crypto investors also, Finance Minister Ms Nirmala Sitharaman gave no relief in case of losses. In addition, the gifts in virtual digital assets would also be taxed in the hands of the recipient.

However, utilising blockchain and other technology, a Digital Rupee is proposed to be launched. The introduction of a Central Bank Digital Currency, according to the Finance Minister, will strengthen India's digital currency. While there is noise around Crypto tax in India, many investors are still unaware about cryptocurrencies and it's tax implications.

What is Cryptocurrency?

Cryptocurrency is a typically decentralised digital asset designed to be used over the internet. Bitcoin, which launched in 2008, was the first cryptocurrency, and it remains by far the biggest, most influential, and best-known.

The regular money (i.e. Rupee) we use is referred to be centralised money, and it is managed by authorities such as the Reserve Bank of India (RBI). In the case of cryptocurrencies, decentralisation means that no similar authority can be held accountable for overseeing the growth and fall of a particular Cryptocurrency.

Cryptocurrencies are typically maintained using peer-to-peer networks of computers that run free, open-source software. Anyone who wishes to participate can usually do so.

Many of you are probably wondering how crypto is secure if no bank or government is involved. It's safe because all transactions are verified by blockchain technology. The balance sheet or ledger of a cryptocurrency blockchain is comparable to that of a bank. Each currency has its own blockchain, which is an ongoing, constantly re-verified record of all transactions conducted with that currency. The goal of encryption is to offer crypto investors with security and safety.

Cryptocurrency is intangible in nature, if you own cryptocurrency, you own an intangible asset in your portfolio. What you own is a key that allows you to move a record or a unit of measure from one person to another without a trusted third party.

Until the introduction of a crypto tax in India, which was announced in the Union Budget for FY 2022-23, the status of cryptocurrencies in India was essentially uncertain.

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How will Cryptocurrency be taxed in India?

As per Union Budget 2022-23, Cryptocurrency gains will be taxed at 30%, which is the highest tax bracket, and this has been effective since April 01, 2022. This would apply to all "virtual digital assets," including Bitcoin, NFT, and earnings derived from them. Cryptocurrencies, in particular, will be taxed at a greater rate than equities and mutual funds.

As stated by the Finance Minister and according to the finance bill, section 115BBH of the Bill deals with tax on virtual digital assets. Clause (2)(b) forbids any loss resulting from the transfer of virtual digital assets from being offset against other income under any other provision of the IT Act, and there will be a 1% TDS on crypto transactions over Rs 10,000 per year. In addition, there would be no deduction possible in any expenditure or allowance while computing income from the transfer of digital assets, except the cost of acquisition of the VDA.

The provisions related to 1% TDS will come into effect from July 01, 2022, while the gains will be taxed effective April 01, 2022.

Keep in mind that all cryptocurrency gains earned during the year will be taxed at a flat 30% rate. For example, if you buy a crypto asset for Rs 10,000 and sell it for Rs 15,000, you will make a profit of Rs 5,000 and be subject to a 30% tax on the profits of Rs 1,500.

By definition, a person who purchased a crypto asset that has considerably increased in value but is yet to be sold, it has generated no profits. Such crypto asset holdings that have not yet 'realized' their gains will not be taxed unless a portion of them is sold.

To Conclude...

India is all set to tax cryptocurrencies from April 01, 2022; the crypto industry is bracing itself for the impact of new crypto rules. The announcement by the Finance Minister of a 30% tax on earnings on the transfer of virtual digital assets, which includes cryptocurrencies, sparked a debate about whether the government has recognised bitcoin as a valid form of currency.

On the contrary, some have speculated that a ban on private cryptocurrencies would be followed by the introduction of the RBI's own official digital currency.

RBI Deputy Governor Mr T Rabi Sankar, in February 2022, stated about this launch of RBI's own digital currency, and it is advisable for India to ban cryptocurrency. This reminds of the government's ban on Cryptocurrency in 2018 (which was overturned by India's Supreme Court in 2020). Moreover, what will be the future of Cryptocurrency remains to be seen.

Do note that, whether cryptocurrency is the future of money or not, you should avoid investing in it until you've done your through research. Cryptocurrencies are relatively new and unreliable due to the lack of macro fundamentals driving the price movement. Retail investors should stay away from cryptocurrency and not get swayed away by past profits.

Many investors are seeking for cryptocurrency assistance due to technological advancements and a future-oriented outlook. However, investing in cryptocurrency is a risky venture, unless you could stomach high risk and be well-verse with the concept of cryptocurrencies and blockchain technology you may avoid investing in these digital assets.

Warm Regards,
Mitali Dhoke
Jr. Research Analyst