Cryptocurrency like Bitcoin, Ethereum, Dogecoin, and others have become highly popular among Indians over the past few years. Crypto has almost created a new investor class as well – teenagers. Finance Minister Nirmala Sitharaman in Union Budget 2022 announced that income in cryptocurrencies will be taxed at 30 percent from the new financial year.
For example, if you have purchased cryptocurrency worth Rs 9,000 and sell them for Rs 10,500, only Rs 1500 will be taxed at 30 percent and not the entire investment. The move has already discouraged investors, especially those who were looking at crypto as a way to make quick money.
Cryptocurrency Tax Rules
- FM Sitharaman said that the scheme would not allow any deduction in respect of any expenditure or allowance while computing such income except the cost of acquisition. Further, she said, loss from the transfer of virtual digital assets cannot be set off against any other income.
- The minister also added that in order to capture the transaction details, the government would also make a provision to provide for Tax Deducted at Source (TDS) on payment made in relation to the transfer of virtual digital assets at the rate of 1 percent of such consideration above a monetary threshold. The provisions related to 1 percent TDS will come into effect from July 1, 2022, while the gains taxed effectively from April 1.
- A gift of virtual digital assets is also proposed to be taxed in the hands of the recipient. The threshold limit for TDS would be Rs 50,000 a year for specified persons, which includes individuals/HUFs who are required to get their accounts audited under the I-T Act.
The crypto market is driven by high-frequency traders, like intraday traders in equity markets. These traders operate on extremely thin margins, and locking up their capital with high TDS will restrict their ability to operate,” Ashish Singhal, Co-founder, and CEO, CoinSwitch said.
Long term loss set off
The current income tax laws allow taxpayers to set off their long-term losses against long-term capital gains. It exempts taxpayers from paying tax on their long-term gains. However, that won’t be possible in the case of crypto income. However, CoinDCX’s Manhar explained that while it’s not possible to set off the losses against other asset classes, one would still be able to do so within cryptocurrency. For example, if you make losses in Bitcoin, it will be possible to adjust it against gains made in Ethereum.