- Budget 2022 Tax Regime on Virtual Digital Assets
- Crypto Taxation Explained (with examples)
- Income Tax on any Gifts in the form of Virtual Assets
- Crypto Taxation on any Loss from Transfer of Digital Assets
- Understanding 1% TDS on Crypto Assets (with examples)
Crypto Tax in India – Crypto Tax Filing Guide for FY 2022-23
Before diving into the taxation and the ongoing conversation from the government regarding the crypto assets, let us take a look back and quickly scan what these crypto-assets are. The crypto assets, like Bitcoin and Ethereum, are decentralized digital assets that run themselves using blockchain technology. If we go back a few years, this crypto space has always been controversial since an anonymous person; Satoshi Nakamoto introduced Bitcoin’s Whitepaper to the world in 2009.
The decentralized nature of the crypto space has since been experimented on and according to Investopedia, today we have more than 18,000 cryptocurrencies which are also known as Altcoins, available.
Though there are still many discussions that the Indian Government is yet to have with the Indian mass regarding the regulations it will set for ‘Virtual Digital Assets’; according to the Budget 2022 session; these are the pointers any crypto investor should keep in mind:
- Income from the transfer of virtual digital assets such as crypto and NFTs will be taxed at 30% at the end of each financial year.
- No deduction, except the cost of acquisition, will be allowed while reporting income from the transfer of digital assets.
- Loss from digital assets cannot be set off against any other income.
- The gifting of digital assets will attract tax in the hands of the receiver. Losses incurred from one virtual digital currency cannot be set off against income from another digital currency. 1% TDS point should also be mentioned in this list of pointers as it was announced in Budget 2022
As per Section 206AB of the Income-Tax Act, 1961:
- If any user has not filed their Income Tax Return in the last two years and the amount of TDS is ₹50,000 or more in each of these two previous years, then the tax (TDS) to be deducted for Crypto related transactions will be at 5%.
- If an order is placed before 1st July 2022, but the trade is executed on or after 1st July 2022, TDS provisions will apply.
Taxation on the gain from the sale of crypto
Nature of Classification
The flat income tax rate is applicable to retail investors, traders, or anyone transferring crypto assets in a given financial year with no distinctions between short-term and long-term gains. 30% tax rate will be levied on any profits made from the transfer of virtual assets. The tax rate will be the same irrespective of the nature of income i.e. it does not matter if it is an investment income or business income and is irrespective of the holding period.
If an investment of INR 1,00,000 was made in crypto at the beginning of FY2022, and by the end of FY2022, the crypto was sold for INR 1,50,000, a flat 30% tax rate is applicable on income gain of INR 50,000. As an investor, you will be liable to pay INR 15,000 (plus surcharge and cess) as tax on crypto income in that financial year.
It should be noted that any income arising on transactions relating to crypto shall be taxed only at the time of transfer of such crypto i.e. if a person continues to hold the asset, the holding is not taxable on such unrealized gains.
*It is to be noted that in this example, we are only adjusting the losses in the same financial year from the same source of income and not setting off prior period losses or losses from any other business.
FOLLOWING ARE THE TRANSACTIONS UNDERTAKEN DURING FY 2022-23
Transaction 1: Bitcoin bought for Rs 5 Lakh and sold for Rs 6 Lakhs
Transaction 2: Ethereum bought for Rs 2 Lakhs and sold for Rs 1.5 Lakhs
Net income from the above transactions shall be Rs 50,000 [Rs 1 lakhs (income from Transaction 1) – less 50,000 (loss in Transaction 2)]
Tax on Crypto income for FY 2022-23: 30% of Rs 50,000 = Rs 15,000 (plus surcharge and cess).
Crypto Taxation on any Gifts in the form of Virtual Assets
Any gifts made in the form of virtual assets will also be taxed and the recipient of the gift is liable to pay income tax at a flat rate of 30% (plus surcharge and cess). This is applicable to people gifting virtual assets such as cryptos or NFTs to friends and family in India.
Crypto Taxation on any Loss from Transfer of Virtual Assets
For computational purposes, there is no deduction (other than the cost of acquisition) allowed against any expenditure or allowance for virtual assets. The government has clarified that if one incurs any loss from the transfer of virtual assets, it cannot be set off against any other income.
For example, if an assessee has a loss of Rs 2 Lacs from crypto and Rs 10 Lacs income from other businesses. This loss of 2 Lacs cannot be set off against the business income and the assessee will be liable to pay income tax on 10 Lacs. Conversely, even losses from other businesses cannot be set off against income from Crypto.
Moreover, it has been clarified that any loss from the transfer of crypto will not be allowed to carry forward to the next financial year.
For example, if a user incurs a net loss of Rs 2 Lacs on the transfer of crypto during the year, his/her tax liability on crypto transfer will be zero for the current year but this loss of Rs 2 Lacs cannot be carried forward to the next financial year for adjusting against the future income in the following financial year. In effect, the loss of Rs 2 Lacs will not yield any benefit to the assessee in future tax periods when he/she generates taxable income from the crypto business.
1% TDS on Crypto Assets
The TDS of 1% has been introduced to capture the transaction details and keep a track of investments being made in crypto assets.. So, every time you sell a crypto asset (subject to a certain threshold), you are liable to deduct 1% TDS of the transaction amount in the financial year.
Many countries around the world have provided clear guidelines on the taxation of crypto assets, and also classified the asset class, for example, the US has classified it under “property” while the UK taxes crypto under “capital gains” tax. Although there are specific questions that require more clarity on the proposed tax regime on virtual assets in India, the government has taken a progressive step further to provide transparency in recognizing crypto assets. The next step in embracing the industry should be to regulate the industry through a crypto bill for further clarity to investors and entrepreneurs.
If the crypto profits are classified under capital gains :
In situations where crypto-related transactions fall under the investing category, the profits will be classified as Capital Gains.
In case of Capital Losses:
In cases where your crypto-related transactions have resulted in losses, there are still no clear and definitive tax-related regulations.
If classified as a Business income:
When crypto transactions are reported as business income, the implication of Goods and Services Tax (GST law) also needs to be examined.
GST angle if treated as business income :
According to Cleartax, ‘Services’ is defined as anything other than goods, securities and money. It includes activities related to using money or its conversion by cash or any other mode for which a separate consideration is charged. Going by this definition, GST may become applicable on the buying and selling of crypto tokens as the supply of goods or services.
If classified as other sources of income :
Crypto assets are also classified as ‘other sources of income’ while anyone fills the ITR forms. Even though no clarification has been received from the income tax department, it is essential to report the gains in the ITR and pay taxes on the gains.
Crypto Tax Rules in India FY 2022-23
To help you understand the crypto tax laws better, here are the most important questions that any investor should make a note of.
- Is Set-Off Of Losses Allowed? According to the Financial Express, no set-off losses are allowed. For example; if you have gained some profit from your BTC investments and you have incurred some losses from ETH or Ethereum, the BTC losses will not be taken into account. Your gains from Ethereum will be eligible for the 39% tax set in place in the FY year-end.
- Can I Carry Forward My Crypto Losses? There is no carry forwarding of losses incurred allowed in crypto tax.
- When Will I Have to Pay 30% Crypto Tax? Your 30% tax from the profits earned via various crypto tokens will be calculated at the end of every financial year; the starting of which will be from the Assessment of the FY 2023-24.
How Much Tax Is Applicable On Crypto Exchange In Business Transactions?
The Government has not yet made any clear announcement regarding the application of taxes on crypto assets when it is used for any business transactions. As the Budget session stated, any Virtual Digital Asset is not equivalent to currencies, the ‘transfer’ of tokens for any purchases is yet to be clarified to understand the application of taxes better.
How Much Tax Is Applicable On Crypto/NFT Airdrops or Gaming Coins?
Various crypto and NFT companies market their new projects using airdrop. A recent example of the same is the LUNA airdrop that happened post the de-pegging of the Terra ecosystem. While the airdrop facility acts as gifting for the receiver of the tokens, individuals who are receiving the assets are liable to pay the 30% tax; as set by the Government.
How to prepare for crypto tax season in India?
Ever since the Budget session of 2022, due to a lack of definite clarity, there have been confusing details going around on the internet. To help clear out your doubts, here are the steps you need to follow for your 30% crypto tax. The tax will be applicable at the end of this financial year; i.e. during the assessment year of 2023-24.
- Start from the fresh sheet, taking into consideration all the crypto assets that you’ve pwned before April 2022.
- Keep a record of the INR amounts during any sale of your crypto assets. The tax will be paid in INR and not using any cryptocurrencies.
- If there are any profits on virtual digital assets, they have to file returns by filing the form known as Income Tax Return 1, 2, 3, or 4, as applicable.
- Institutions or businesses have to file returns by filing the form known as Income Tax Return 5 or 6, as applicable.
Crypto Tax on CoinDCX & CoinDCX Pro
CoinDCX is dedicated in making your crypto-investment journey seamless and secure. To help you understand your crypto taxes better, CoinDCX has made detailed step-by-step documents for you to understand when and how the 1% TDS will be applicable apart from the 30% annual tax on Virtual Digital Assets.
If you are a CoinDCX user, please click here to understand how the 1% TDS will be applied, starting July 1st.
If you are a CoinDCX Pro user, read our detailed blog on how or for what instances the 1% TDS will be applicable.