Cryptocurrency is a type of money like fiat currency, but it only exists in digital form; there is no physical currency involved. In 2008, a person who went by the name Satoshi Nakamoto made bitcoin, the first cryptocurrency that was widely used. Since then, there have been tens of thousands of other cryptocurrencies, such as Ether, Solana, and others. The Complete Guide to Crypto Tax in India, 2023
The Union Budget for 2023 was great news for the middle class because it changed the tax slab and gave the middle-class tax breaks on their income. But since there have been no announcements about crypto, and the blockchain, the Web3 industry in India is worried about its uncertain future.
In the last budget, Finance Minister Nirmala Sitharaman said that crypto would be taxed at a flat rate of 30%. This was not changed during this year’s session.
What are Virtual Digital Assets which India’s finance minister refers to?
Before we get into how the government taxes “virtual digital assets,” also called “crypto assets,” and what they are talking about, let’s take a quick look at what are these.
Crypto assets, such as Bitcoin and Ethereum, are virtual digital assets that don’t have a central administrator and run themselves using blockchain technology.
What happened in the 2022 Union budget about crypto tax in India?
In her Budget speech from the previous year, India’s Finance Minister Sitharaman introduced crypto taxation by bringing private cryptocurrencies under the umbrella of virtual digital assets (VDAs).
In the budget for 2022, a new section called 115BBH was added to tax crypto. Profits from Crypto trading are taxed at a rate of 30% (plus any applicable surcharge and 4% cess) (starting from April 1, 2022).
This rate is the same as the highest tax bracket in India (excluding surcharge and cess). This tax applies to private investors, business traders, and anyone else who moves crypto assets in a given fiscal year (subject to conditions).
Also, the 30% tax rate will be applied no matter what kind of income someone has. So it doesn’t matter if the money comes from a business or an investment, and there is no difference between short-term and long-term gains.
In addition, 1% TDS (Tax Deductible at Source under section 194S of the Income Tax Act) was added to Crypto transactions. This is true for all cryptocurrency transactions made on or after July 1, 2022.
On December 13, 2022, the government said that since the TDS rules went into effect in July, they had collected INR 60.46 crore in taxes from entities that had dealt in virtual digital assets (VDAs), such as cryptocurrencies.
To give one example:
If INR 3,000,000 was put into Crypto at the beginning of FY 2022 and you sold it for INR 350,000 at the end of FY 2022, you would have to pay a flat 30% Crypto tax on the gain (INR 50,000).
In that financial year, as an investor, you will have to pay INR 15,000 (plus surcharge and cess) as a tax on your Crypto income.
Note that any income from Crypto transactions is only taxed when the asset is transferred. If someone keeps the asset, the unrealized gains are not taxed.
India’s Cryptocurrency Taxation Policy in Union Budget 2023
India’s strict crypto tax rules from 2022 will still be in place in 2023, and the rule about tax deducted at source now includes a fine or jail time for not following it (TDS).
Last year, the world’s largest democracy put high taxes on crypto transactions: a 30% tax on profits and a 1% TDS on all transactions.
The 1% TDS is still in place, but until now, if a citizen tried to avoid paying the tax or only paid part of it, there was no penalty for not following the law.
The most recent modifications to the TDS rules affect the taxation of virtual digital assets (VDA), such as cryptocurrencies. Under section 194S(1) of the Finance Bill 2023, failure to pay TDS on crypto transactions or crypto transactions where the payment is partially or wholly in kind can result in up to seven years in prison.
Why India should focus on virtual assets like cryptocurrency?
India was left out of the Web 1.0 and Web 2.0 technological revolutions that gave rise to industry titans like Amazon, Google, Microsoft, and Facebook. We must not let the Web 3.0 revolution pass us by. Discouragement of cryptocurrencies will hurt all blockchain and cryptocurrency innovations, which will set us back as a country and destroy the emerging investing class.
Indian businesspeople who want to launch blockchain startups will need to look for opportunities abroad that will support their goals, which could lead to more brain drain. By switching from being a net importer of technology to being a net exporter, India has the potential to lead the world in Web 3.0. The blockchain-based successor to Google or Amazon might be headquartered in India.
Final Words
The government’s main goal in enabling the cryptocurrency tax in India is to establish market regulation that will discourage casual investors from dabbling in the space without the necessary information or due diligence.
Additionally, by imposing TDS on all transactions that exceed a certain threshold, the government will be able to monitor and record every crypto or VDA transaction.
Tax evasion is impossible thanks to the government’s comprehensive tax policies on cryptocurrencies. The goal of cryptocurrency exchanges is to create a government-compliant environment where all transactions and investments within the domain are transparently visible to the tax department.
We think that the cryptocurrency ecosystem, along with its companies and investors, is soon going to experience growth. A thriving, long-term industry already has the foundation laid out by the government.
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Before starting your investment journey, investors who want to buy, sell, or trade virtual digital assets should familiarise themselves with the new tax laws and ideally speak with a tax advisor.
FAQs:
Q: Can the loss incurred on one crypto asset be set off against the profit from another?
A: No set-off losses are allowed.
Q: Will there be any Crypto tax if I transfer coins between my wallets?
A: If the transfer is made from one wallet to another belonging to the same person, there won’t be any tax.
Q: When will you pay Crypto tax in India?
A: Every time you conduct a transaction, such as selling, trading, or spending cryptocurrency on goods and services, you may be required to pay a 30% tax. The 30% tax won’t always be applicable, though, as the ITD may mistakenly consider you to be earning money. You will pay tax in these situations upon receipt at your tax rate.
Q: What about 1% TDS on crypto assets?
A: A 1% TDS will be charged when a crypto asset is transferred. TDS is a type of tax that is gathered at the point of the transaction. The main objective of the 1% TDS is to record transaction information and keep track of Indian investors’ purchases of crypto assets.
Q: Will Crypto Tax applies to Gifts received in the form of Virtual Assets?
A: Any gifts given in the form of virtual assets are subject to taxation as well, with a flat rate of 30%. This applies to individuals who give virtual assets, such as cryptocurrency or NFTs, to friends and family members in India.