Taxation on Cryptocurrency in India
The financial market has seen waves of changes, especially due to multiple trends and global changes. The current most flying thought on people's radar is cryptocurrency.
Cryptocurrency is digital money that uses cryptography for transactions. These codes are not easy to crack. It is organized by blockchain which is a peer-to-peer network. Crypto doesn't have any central issuing authority. It uses encryption for transactions. That's why it is called cryptocurrency. Encryption provides the highest standard of safety and security.
Cryptocurrencies are also virtual currencies. In 2009, the first cryptocurrency 'Bitcoin' was created. Today we have Ethereum, Dash, Zcash, Ripple, Litecoin, etc as cryptocurrencies.
The Changing Legal Landscape of Cryptocurrency
Cryptocurrencies have been in the spotlight in the finance Industry. It has been pulling the attention of the tax administrations because of the remarkable prices at which they were in India and across the globe. The current legal landscape of cryptocurrency has changed with taxation on cryptocurrency.
When talking about cryptocurrencies, every country has a different set of rules related to them. While some countries are still thinking of implementing laws around them, some have completely banned them.
Well, what is India's take on cryptocurrencies? What about the taxes? How are the legalities implemented on virtual digital assets in India? Let's know the answers very closely.
Taxation in Cryptocurrency in India
India’s crypto community has been waiting anxiously for a clear picture of how the Indian government wants to tax these assets. The budget speech on Feb 1, 2022, made things clear.
Finance Minister Nirmala Sitharaman confirmed that India will tax the virtual digital assets at 30% from April 1. This will have no exemptions and deductions. The legality of cryptocurrency in India is now subject to gains tax. This is identical to stocks in the equity market.
Crypto Taxation On Investments
When the crypto-transactions are categorized as investments, they will be assessed capital gains or losses under the capital gain. In simple terms, when the sale rate is more than the cost, it will be considered capital gain. When the cost is higher than the sale rate, it will be seen as a capital loss.
As per the income tax slabs, a short-term capital gain tax will be imposed when the crypto assets are held for less than 36 months (3 years). If they are kept for 36 months, they will be seen as long-term investments and taxed at 20% along with indexation benefits.
Crypto Taxation On Business Income
When the transactions of cryptocurrency are seen as a business income, the GST law will be examined. Due to the implication of the Goods and Services Tax, all expenses (direct and Indirect) will be considered as deductions from profit on the sale of virtual digital assets. This profit will be clubbed with other income and taxed according to the income tax slab rates.
Crypto Taxation On Other Sources Of Income
Crypto can also be seen as income from other sources during classifying ITR. It is taxed accordingly. Income from other sources is taxable and is also added to the total income.
Crypto assets can also be seen as speculation business income and taxed according to the highest tax slab. Nevertheless, till any clarification from the income tax department, the taxpayers can profit from categorizing it as ordinary business income or capital gains.
TDS on Cryptocurrency in India
With the announcement of a new budget for the upcoming year, the crypto-traders have got the real killer blow! The 1% Tax deductible at source (TDS) will apply to every transaction involving cryptocurrency from July 2022.
This means if a person makes 5 transactions in a day for 10 lakh each, he will have to pay 10,000 rulers ×5 transactions which are 50,000 rupees. When he/she is trading within the platform, no such charge is imposed. It will only be charged while doing IMPS to a person.
The majority of crypto fans in India earn their living from regular crypto trades in terms of quick flipping of tokens or Arbitrage. The biggest problem with this law will be faced by Day traders, Market Makers, and Arbitrage seekers. For them, the party is definitely over as soon as the TDS law comes into effect. The least affected will be the investors.
Though the government is enthusiastic about tracking the money that is going into crypto, 1% TDS might put restrictions on the trades in India.
How Much Cryptocurrency India Possesses?
India has around 15 million cryptocurrencies with a net holding of more than $5 billion. This makes it very clear how investors are finding interest in crypto. With its growing popularity, many crypto-unicorns have been arising.
Cryptocurrencies can be divided into four types. This is based on their utility. They are NFT, DeFi, utility tokens, and store of value tokens. The store of value tokens is Bitcoin and Litecoin. Currently, there are more than 15,000 cryptocurrencies globally and more are being added every day.
The Legality of Cryptocurrency in India: Cryptocurrency Tax for Indian Investors
The Indian government has come up with taxation on cryptocurrency in the Union Budget 2022. This States that the crypto enthusiast will pay a 30 % tax on their profits.
Let us understand this in simple terms. If you invest Rs 2,00,000 in crypto, and you sell it at Rs2,25,000. You will have to pay a tax on the profit of 25000 rather than paying 2,25,000.
The 30% tax is accompanied by 1% TDS deposited by the person who is the facilitator or is responsible for paying the consideration during every crypto transaction.
With the announcement of a new budget for the upcoming year, the traders have got the real killer blow! The 1% Tax deductible at source (TDS) will apply to every transaction involving cryptocurrency from July 2022.
This means if a person makes 5 transactions in a day for 10 lakh each, he will have to pay 10,000 rulers ×5 transactions which are 50,000 rupees. When he/she is trading within the platform, no such charge is imposed. It will only be charged while doing IMPS to a person.
The majority of crypto fans in India earn their living from regular crypto trades in terms of quick flipping of tokens or Arbitrage. The biggest problem with this law will be faced by Day traders, Market Makers, and Arbitrage seekers. For them, the party is definitely over as soon as the TDS law comes into effect. The least affected will be the investors.
Though the government is enthusiastic about tracking the money that is going into crypto, 1% TDS might put restrictions on the trades in India.
The reaction of Indians on The Taxation on Cryptocurrency
The recent 30% tax on cryptocurrency in India has provoked varied responses from Indians. Some point that the tax of 30% on cryptocurrency indicates that the government puts it at the same level as betting and speculation.
A petition to discard the 30% tax received the initial mark of 50,000 signatures within hours of beginning the petition. Many are relieved that the government has at least started working on a framework to tax cryptocurrency that has been trending now. But to many, a 30% tax on cryptocurrency was the much better option between two harms — the other being a complete ban on it.
Marketing, trading, and handling cryptocurrency is completely legal in India as long as the regulation does not claim it to be illegal.
Recommended Article: How to Beat Inflation in India?
How Can You Prepare Yourself for Crypto Taxation?
You will pay the taxes on cryptocurrency in fiat currency, right? Keep track of your digital asset before April 2022. This will include the gains and losses on your virtual digital asset.
If you have profits on cryptocurrency, you will be required to file a return by Income Tax Return 1, 2, 3, or 4 (as applicable). Businesses can file returns by Income Tax Return 5 or 6.
The move towards taxation of cryptocurrency by the Indian Government is a progressive step towards encouraging the digitalization of India.
How To Save Tax in Cryptocurrency?
The budget of the upcoming financial year is a surprise for virtual digital assets. The 30 percent tax on cryptocurrency will not be applicable in this financial year i.e. year ending March 31, 2022.
The most common question after the announcement of the annual budget in 2022 is how to save tax in Cryptocurrency? As the cryptocurrency will be taxable, you cannot save tax on Crypto capital gains in India. No exemptions will be allowed. You cannot club the income attained with other income.
If you do a transaction before April 1, you can show it in the ITR under any head. The Assessment Officer will do the assessment. You will pay some tax but not 30%. This will be great for small investors.
Should you Invest in Cryptocurrency?
Crypto possesses a lot of potential in terms of investment. However, one cannot guarantee it. It can be rewarding for some and enjoyable for others. If you have just started understanding cryptocurrencies, do not risk large amounts of money.
The returns are lucrative without much time investment. This is what allures people towards crypto and the world of digital assets. Use a data-driven method to observe and invest in cryptocurrency. Trusted news sites and experts can help you best in staying informed about the recent updates of the crypto world.
Before investing, understand cryptocurrency exchanges. It is assessed that there are more than 500 exchanges to select from. Do your study, read surveys, reviews and talk with more proficient investors before taking any step. For example, study about diversification in terms of investment. These means don't just invest in bitcoin. There are several other cryptocurrencies to choose from.
The Future of Cryptocurrency in India: Introduction of Blockchain Technology in Indian Economy
As cryptocurrency became popular, people started investing in crypto coins, especially in 2020-2021. The Reserve Bank of India has passed several regulations.
The central government will also launch a digital rupee. This initiative is to make the transactions more efficient. The Reserve Bank of India will enforce it to lessen the people’s reliance on cash.
India is very close to becoming a country with laws associated with digital currency. This blockchain technology will be integrated into the Indian economy.
Whether you want to invest in cryptocurrency or not, businesses, brands, and investors cannot stay away from it for too long. Reviewers estimate that the cryptocurrency market globally will be more than triple by 2030. This will affect India's scenario of cryptocurrency as well.
As nations are exploring the future of virtual digital assets, the market is booming globally. The future of cryptocurrency in India looks brilliant based on the market and people ready to enter this cryptic space.
Also, read: Future of Cryptocurrency in India: Should You Invest?
Final Takeaways
The cryptocurrency in India's scenario can strengthen the nerve of India's digital infrastructure. It also has the potential to secure all the deals done on the digital network. In this way, imposing taxes on cryptocurrency transactions can be considered a welcoming move, rather than a restriction.
It is a nice way to keep a check on the crypto transactions for using it legally. It will not only allow the transactions to be traced but will create income for the Indian government to be used creatively.
It is also asserted that levying tax on crypto as a policy matter can enable the formation of a standard atmosphere. This will ensure the traders that their wealth is safe and the risks involved in trading are also removed.
What are your views on taxation on cryptocurrency in India? Is it a boost to $ 5 trillion economy visions? Leave your views in the comments below!