Tax on cryptocurrency in India & How it is taxable

Tax on Cryptocurrency – Budget 2022 Levies 30% Tax & TDS on Crypto Assets. In short, you can easily understand the applicability of tax on cryptocurrency through the given point-

(1) Virtual digital assets mean inter-alia code or number or token (not being Indian or foreign currency) generated through cryptographic means or otherwise and includes Non-Fungible Tokens or any other token of similar nature

(2) Income from virtual digital assets taxable at 30%
a. Cost of acquisition allowed as a deduction – no other deduction allowed
b. Loss on the transfer of virtual digital asset not allowed for set-off or carry forward purposes
c. This provision shall take effect from AY 2023-24

(3) Gifts of virtual digital assets will be a benefit taxable in the hands of the recipient

(4) TDS at 1% introduced for virtual digital assets transactions
a. On transfer consideration payable/ paid to residents. Applicable even where consideration is wholly / partly in kind or in exchange for another virtual digital asset.
b. Will override TDS obligations under section 194O, which applies to payment made by the e-commerce operator to an e-commerce participant
c. This provision shall take effect from 1 July 2022This amendment will be effective from AY 2022-23

What is Virtual Digital Assets?

Virtual digital assets mean inter-alia code or number or token (not being Indian or foreign currency) generated through cryptographic means or otherwise and includes Non-Fungible Tokens or any other token of similar nature.

Cryptocurrencies are digital assets and decentralized systems that allow for secure online payments. Such as

What is cryptocurrency?

A cryptocurrency is a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend. Many cryptocurrencies are decentralized networks based on blockchain technology—a distributed ledger enforced by a disparate network of computers. A defining feature of cryptocurrencies is that they are generally not issued by any central authority, rendering them theoretically immune to government interference or manipulation.

What is the tax rate on cryptocurrency?

From the date 01.04.2022, Income from virtual digital assets taxable at 30%
a. Cost of acquisition allowed as a deduction – no other deduction allowed
b. Loss on the transfer of virtual digital asset not allowed for set-off or carry forward purposes
c. This provision shall take effect from AY 2023-24

From which date tax is applicable on cryptocurrency in India?

As per budget 2022, Tax is applicable on income from the virtual digital assets at 30% from 01.04.2022.

What deductions are allowed in crypto taxation?

Income from virtual digital assets taxable at 30% and
a. Cost of acquisition allowed as a deduction – no other deduction allowed
b. Loss on the transfer of virtual digital asset not allowed for set-off or carry forward purposes

Gifts of virtual digital assets will be a benefit taxable in the hands of the recipient

How is TDS applicable in cryptocurrency?

TDS at 1% introduced for virtual digital assets transactions

1. On transfer consideration payable/ paid to residents. Applicable even where consideration is wholly / partly in kind or in exchange for another virtual digital asset. Will override TDS obligations under section 194O, which applies to payment made by the e-commerce operator to an e-commerce participant
2. TDS (Sec-194S): TDS on payment made in relation to transfer of VDA @ 1% of such consideration above a monetary threshold i.e. 50,000/ 10,000.
   1. Monetary limit: Monetary limit are as under:
      1. (a) In case of Specified Person: Consideration payable not exceeds 50,000 during the financial year.
         (b) In case of Other than Specified Person: Consideration payable not exceeds 10,000 during the financial year.
   2. Specified Person: Defined as under:
      1. (a) Individual/HUF whose:
      2. Business– Total sale or turnover from the business carried by him not exceed by One Crore rupees
         Profession– Gross receipt from the Profession carried by him not exceed by Fifty Lakhs rupees
         Other than Business/Profession– No income under the head of ‘Profit and gain of business or profession’ during the financial year immediately preceding the financial year in which such VAD is transferred.
3. This provision shall take effect from 1 July 2022This amendment will be effective from AY 2022-23

Why tax is levied on crypto in India?

An announcement on tax on crypto income is a great move forward by India for 3 reasons –

1. firstly, this move recognizes crypto as a legitimate asset class and crypto trading as a legitimate activity.
2. Secondly, clarity on tax will bring more people into the crypto industry, so it will boost industry growth.
3. Thirdly, a well-regulated crypto eco-system will create the right environment for innovation.

Can I invest in cryptocurrency?

Yes, India has not banned crypto investing. It has been brought under the tax net. Do your due diligence and stick to your risk profile before investing in cryptocurrency. Invest in cryptocurrency at a maximum of five percent or with money you can afford to lose because it has the highest risk-reward ratio. Invest cautiously until you understand this new animal. Also, now be prepared to pay a tax of 30 percent on your crypto gains.

How to calculate tax on cryptocurrency?

There are simple steps that can be followed to calculate tax on income from crypto assets in India such as

• Firstly, you have to trade in cryptocurrency in India and have to purchase or sale any selection crypto assets.
• Then you should calculate profit on sale of crypo assets for an example if, you buy 1 bitcoin @ 30 lac and then you sell it @ 40 lac now here you will see that you have earned profit of 10 lac.
• Now, As per applicability of tax @ 30% on profit, so you will pay 30% of 10 lac which is 3 lac as income tax

How to save tax on cryptocurrency in India?

You can not save tax if you will trade in cryptocurrency in India after 01.04.2022. As per budget 2022, you will have to pay tax @ 30% on profit on the sale of any virtual digital assets/ cryptocurrency. Because there is no further deduction that will be allowed except the cost of acquisition.

What are the Tax rates on cryptocurrency in other countries?

There are different tax rates in different Countries, somewhere high cryptocurrency tax or somewhere low cryptocurrency tax such as

1. USA – Tax In United States, cryptocurrency is treated as capital gains and taxed accordingly. Short term capital gain is taxed in the range of 10% to 37% whereas long term gains are taxed in the range of 0-20%.
2. UK – If you are a basic rate taxpayer, you will have to pay 10% tax on cryptocurrency transactions. For higher and additional rate taxpayers, tax is charged at 20%.
3. Netherlands – Tax rate in this country varies based on taxpayers’ income and profile. In case of cryptocurrency, the highest possible tax rate is 31%.
4. Australia – In this country, crypto transactions are treated as capital gains. For capital gains of more than 12 months, the tax rate is 50%.
5. Canada – Crypto assets are treated as commodity. Highest applicable tax rate on crypto assets is 33%.
6. Countries with lowest cryptocurrency tax- Some countries are a lot more liberal when it comes to imposing tax on crypto transactions. Countries with nil or lowest crypto tax rates include Germany, Switzerland, Portugal, Singapore, Cyprus, Malta, Malaysia, and Bermuda.

Can you avoid tax on cryptocurrency?

No, if you are trading in cryptocurrency/ virtual digital assets in the countries where are tax is applicable on cryptocurrency transactions.

How much tax on cryptocurrency in india?

A single tax rate is applicable on income from the sale of virtual digital assets such as bitcoin and altcoins in India that is 30% with deduction of the cost of acquisition only no other deductions are allowed.

Will crypto tax reduce in India in the future?

Although the 30% tax rate on cryptocurrencies is high, experts believe that it may not remain like this forever. Tax rates have been continually revised in India and it would apply to cryptocurrencies as well.

The government may be taking a hard step initially to ascertain how things work out. This is something entirely new, so it makes sense to be cautious during the initial stages. As more data is generated and crypto’s impact on the economy is better understood, the tax rate may be revised.

What are virtual digital assets & How are they different from digital currency?

A currency can be defined if it is issued by the central bank. “I said the Reserve Bank will be issuing a digital currency, a currency is a currency only when it is issued by the central bank even if it is a crypto. But anything which is outside of that loosely all of us refers it to be cryptocurrency but they are not currencies,” Sitharaman said when asked about cryptocurrencies.

She clarified that what the RBI issues in the next fiscal will be the digital currency and everything else apart from that are digital assets being created by individuals and the government will be taxing the profit which is made during transactions of such assets at 30 percent.

In the memorandum explaining the provisions in the Finance Bill, the government said that “Virtual digital assets have gained tremendous popularity in recent times and the volumes of trading in such digital assets have increased substantially. Further, a market is emerging where payment for the transfer of a virtual digital asset can be made through another such asset. Accordingly, a new scheme to provide for taxation of such virtual digital assets has been proposed in the Bill.”

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Mayur Kumar

An Accountant, GSTP, GST blogger, Website Creator, SEO Builder & Co-founder of the website https://gstportalindia.in for the help of GST Taxpayers of India. Having a perfect accounting experience of more than 10 years in a Private Ltd Company.

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