India’s new crypto tax goes into effect in April — here’s what you need to know.
Cryptocurrency earnings will be taxed at a rate of 30% beginning in April, the highest tax level and the same rate as lottery winners. This would apply to all virtual digital assets, including Bitcoin, and NFTs.
On the other hand, stock trading has a tax rate that can range from 0% (if reported as business income dependent on tax slab) to 15%. (if filed as a short-term capital gain).
However, a tax rate comparable to that of the lottery is just the tip of the iceberg; to stay on the right side of the law in the fiscal year 2022–23, crypto investors will need to be mindful of other rules.
In 2021, India had nearly ten million cryptocurrency users, with around $100 billion in trading volume. According to the creator of WazirX, an Indian crypto exchange, this might result in an additional $100 million (or 750 crores) in income tax in a year.
What exactly will happen after 1st April?
To begin, all crypto income earned during the year will be taxed at a flat 30% rate. So, if a person buys a crypto asset for ₹10,000 and sells it for ₹12,000, they will make a profit of ₹2,000 and pay a 30% tax of ₹600.
A person who purchased a crypto asset that has considerably grown in value but has yet to sell it has made no earnings. Therefore, such crypto asset holdings that have not yet realized their profits will not be taxed unless a portion of them is sold.
TDS on tax
The government has imposed a 1% TDS on all crypto transaction redemptions, which will probably be deducted by the crypto exchange. The TDS is taken from the total transaction value even if you lose money.
For example, if you purchased Bitcoin for ₹40,000 and sold it at the same price without making a profit, you would only receive ₹39,600. On the other hand, if you invest the same ₹39,600 in Ethereum or NFTs and sell at a loss, you will lose 1% to TDS and receive just ₹39,204. This TDS can be applied to the total amount of income tax owing at the end of the year.
Other provisions:
People who make most of their money from crypto assets might report it as business income. However, no deductions for company expenses will be permitted on bitcoin revenues, making this path unappealing.
It will also be illegal to avoid the 30% crypto tax by declaring crypto income as capital gains, taxed at up to 20% plus a surcharge.
In the case of cryptocurrency mining, the government is debating whether to tax it as a good or a service, bringing it within the GST umbrella. The government intends to impose GST on crypto trades conducted on overseas crypto exchanges.
Professionals and business people will be unable to deduct profits or losses from their primary income from their cryptocurrency income.
Does this mean the cryptocurrency is legal in India now?
Even though crypto isn’t regulated yet, India’s Finance Minister Nirmala Sitharaman clearly stated that the future tax laws do not grant it ‘legal standing.’ According to her, the government is just using its sovereign right to tax transactions. Furthermore, a recent high court judgment clarified that income tax applies to all money, whether acquired ‘legally’ or not.
The proposed framework for regulating cryptocurrency has yet to be introduced in Parliament. Still, the finance ministry is working on a consultation document that will be available for public discussion in six months.
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