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What is Crypto Tax?
The Indian government introduced a crypto tax regime on February 1, 2022 where a blanket rate of 30% would be applicable on gains from crypto assets or “virtual digital assets" along with 1% tax deducted on the source (TDS) on the transfer of such assets.
What are cryptocurrencies?
In layman language, cryptocurrencies are digital currencies designed to buy goods and services, similar to our other used currencies. However, since the beginning, it has largely been controversial due to its decentralised nature, meaning its operation without any intermediary like banks, financial institutions, or central authorities.
Today, more than 1,500 virtual currencies, such as Bitcoin, Ethereum, Litecoin, Dogecoin, Ripple, Matic, etc., are traded in the digital currency world. The investment and trading volume of cryptocurrencies has increased multifold since the nationwide lockdown. The crypto investments have grown despite any precise regulation from the government or RBI.
Legality of Cryptocurrency
So far, the Indian government has not yet granted any status of legal tender to cryptocurrencies.
In 2018, RBI tried to impose a ban by restricting banking facilities to the crypto exchanges. However, the ban was ruled out by the Supreme Court on constitutional grounds and virtual exchanges fundamental rights.
How to calculate tax on income from cryptocurrency
Budget 2022 has proposed to introduce a new Section 115BBH for taxation of persons whose sources of income include income from transfer of VDAs. “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 income of transfer of any virtual digital asset at the rate of 30% and 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 a virtual digital asset,” Budget 2022 Memorandum said.
As per the Budget Memorandum, the total tax liability of an individual invested in cryptocurrency or other VDAs will be the sum of income from transfer or transaction of such assets and the tax s/he would have paid even without crypto income.
Flat 30% tax will apply on profit from transfer or sale of digital assets including crypto and NFTs from next financial year (FY 2022-23). Investors should also keep in mind that crypto losses can’t be set off or carry forwarded.
When will you have to pay 30% tax on income from cryptocurrency, NFT?
According to the Budget document, 30% tax on cryptocurrency and other VDAs would be applicable from Assessment Year 2023-24.
Will you have to pay tax for holding crypto?
You will have to pay tax only when you earn an income from transaction, transfer or exchange or crypto or other virtual digital assets. No tax is to be paid for holding crypto, according to experts.
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