India has nearly 15-20 million cryptocurrencies, with total crypto holdings of more than $5 billion, indicating a high level of interest among investors. Several crypto-unicorns have emerged as a result of this rapid growth. Digital assets are contributing $1.1 trillion by 2032, according to estimates.

Finance Minister Nirmala Sitharaman proposed declaring cryptocurrencies, non-fungible tokens, and any other asset as “virtual digital assets” that are now subject to gains tax, similar to stocks in the equity market, in this year’s budget. 

The launch of a digital rupee, according to the finance minister, will usher in cheaper and more efficient currency management. The Reserve Bank of India has been developing a phased implementation strategy to reduce the country’s high cash dependency.

What are the crypto taxes in India?

Gains from trading in cryptocurrencies and related assets such as non-fungible tokens (NFTs) will be taxed at a flat 30% rate, with 1% tax deducted at source (TDS) when such transactions occur, according to Union finance minister Nirmala Sitharaman’s Budget speech in 2022.

Cash-dependent India has joined countries such as China in developing digital versions of their currencies to take advantage of new technologies and make transactions more efficient. At the same time, despite the central bank’s warnings about the risks of money laundering, terrorist financing, and price volatility, the high tax rate on cryptocurrency could deter traders.

After years of being completely unregulated, including a lack of even a definition for how the government saw cryptocurrencies like Bitcoin or Ether, the announcement marks a decisive direction on such trades.

When to file crypto tax in India?

The deadline for filing taxes for the fiscal year 2020-2021 has been extended three times, and it was set for March 15, 2022. For tax returns to be filed for the fiscal year 2021-2022, the deadline for individuals is July 31, 2022, but the deadline for businesses is April 1, 2022. It’s worth noting that the government frequently extends this deadline.

The deadline for filing tax returns for the fiscal year 2021-2022 for individuals and businesses subject to tax audit is Oct. 31, 2022. For the taxpayer, the deadline for filing tax returns for the fiscal year 2020-2021 has already passed (Feb. 15, 2022).

The Finance Minister also stated that “to provide taxpayers with an opportunity to correct an error, taxpayers can now file an updated return within two years of the relevant assessment year,” characterising the move as “an affirmative step towards voluntary compliance.”

What is a virtual digital asset? 

The government included new provisions in the Union Budget for 2022-23 aimed at taxing and tracking Virtual Digital Assets. Along with the framework for taxation, the Budget defined virtual digital assets for the first time. In the newly inserted clause (47A) under Section 2 of the Income Tax Act of 1961, the Finance Bill defines virtual digital assets.

Any information, code, number, or token (other than Indian currency or foreign currency), generated through cryptographic means or otherwise, by whatever name called, providing a digital representation of value exchanged with or without consideration, with the promise or representation of having inherent value, or functions as a store of value, including its use in any financial transaction or investment, is considered a virtual digital asset.

Our views on the implication of Crypto tax in India

30% tax is high: The new tax regime appears to be a strong whip against cryptocurrency trading. With cryptocurrency receiving the highest tax rate of any asset class at 30% and the implementation of a 1% TDS on larger trades, investors may feel the pinch if they react to market movements with additional trades. However, we believe that the gains from crypto and NFTs are still substantial, and a 30% tax rate may not deter most investors. Indeed, the fact that it has been granted legal status has increased the number of investors.

No clarity on long-term investors in crypto in India: The current regime makes no distinction between short-term (less than a year) and long-term (more than a year) investments in the ecosystem. Long-term investing typically has a subsidized taxation policy (or a rebate) to encourage investors to hold on to an asset to maximize their returns. We believe the government will reconsider this in the future.

Keep track of all crypto transactions: The government has given the ecosystem careful consideration and has entrusted the primary responsibility of tracking and reporting gains to companies and investors. Investors who make thousands of trades across exchanges in a year will have to meticulously note and record each one to calculate their tax liability. However, developed countries have systems and services that accomplish this, and we believe that services will evolve to meet this requirement. Carret is already developing a product to help with this process by generating simple P&L and tax statements.

Crypto trading education in India: Let’s admit the fact that many people in India trade in crypto just to be a part of the crypto profit craze. Some kinks need to be worked out and explained to the average investor. It will be critical for the success of this tax regime to educate them properly. 

Conclusion

While the government has taken a pragmatic approach to ensure that the growth of an ecosystem is limited until the full extent of its implications is understood, there are many benefits that the ecosystem can realize right away. When presented, this tax regime, along with a virtual digital assets bill, will legitimize all businesses operating in the country and provide consumer protection for investors. 

Exchanges and related platforms will become the industry’s legal gatekeepers. Along with the digital rupee that the RBI is rumored to be enabled via blockchain, the Indian crypto community will be able to trade with ease and certainty on their investments.

Carret is a one-stop-shop for crypto investments. It provides a trading platform where you can buy and sell assets while also earning interest on your crypto assets. “24Carret” is our Crypto Savings Account platform, which allows our users to earn interest on their crypto holdings. The available returns range from 7% to 17% APY.

Overall, we believe that the crypto ecosystem, as well as its businesses and investors, are poised for expansion shortly. The government has already laid the groundwork for a thriving, long-term industry.