The Budget 2023 Crypto Tax Update
In the Budget 2022, the Hon’ble Finance Minister Mrs. Nirmala Sitharaman has announced revolutionary changes to the virtual asset class. For the first time, the government has officially termed digital assets including crypto assets under “Virtual Digital Assets”. These comprise all the cryptos such as Bitcoin, Ethereum, etc, and other digital assets such as Non-fungible token (NFTs).
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.
Recent Updates on Crypto Tax In India
The previous Union Budget rules that has been effective since April 1, 2022 is one of India’s first laws to recognize crypto assets. However, it is important to note that the rules has classified cryptos as “virtual digital assets,” separating them from “currencies” that are backed by the central bank.
According to 115BBH section of the Finance Bill, a taxable event is defined as:
1. Conversion of any digital assets to INR or any other fiat currency.
2. Conversion of one type of virtual digital asset to another type; which may include crypto-to-crypto trading, or trading in stablecoins.
3. Paying for goods and services using a virtual digital asset.
Any profits that will or has been incurred from the above transactions are subjected to a 30% tax, which is equivalent to India’s highest income tax bracket. Furthermore, if the transaction exceeds INR 10,000, it will be taxed by an additional 1%.
However, not all of the crypto transactions are subjected to the 30% tax. Activities which are the likes of gifting crypto, staking rewards, receiving payments, airdrops, mining coins and other DeFi (decentralized finance) transactions are put under the lens to be viewed as “income.” When such incidents takes place, taxes are calculated as per the recipient’s income tax rate.
However, if one wishes to hold the assets and sell them later, they will be liable to pay a 30% tax on any appreciation in asset market value.
What Can Be Expected From Budget 2023 For Crypto
- Guided Legislation of crypto
- Clarity on the regulations of crypto
- Lower Crypto tax
Read More:Union Budget 2023: What Awaits the Crypto Industry
Timeline of Crypto Tax Regulations In India
| Dates | Events |
| 2013 | The RBI issued a circular that stated cautions for investors about making speculative investments such as in cryptos. |
| 2013-2017 | Joining hands with the developments that took place toward digital payments in India, the crypto industry established its roots. It was then that Indian exchanges such as Zebbay and Unocoin started to gain traction. |
| 2017 | With the traction gaining momentum, there were two writ petitions that were filed. One of them was to ban crypto and one to regulate crypto. Following this, the government formed a regulatory body to investigate the crypto asset space further. |
| 2018 | Even though there had been multiple warnings by the RBI, Indian crypto markets kept on gaining momentum and that added record number of users. To counter that trend from taking a massive step, the RBI issued a circular in April on 2018, where they restricted banks and lenders from forming any association with crypto exchanges. This step effectively affected the blossoming industry quite quickly. |
| 2019-2020 | Indian exchanges and blockchain advocates filed multiple petitions and went to court in a bid to overturn the ban on crypto. |
| 2020 | With a long fight for almost 2 years, the Indian Supreme Court finally overturned the RBI order and declared that it is unconstitutional to prohibit trading without any regulations. That decision propelled the crypto boom of 2020 and served as the breaking point that the Indian crypto market desperately needed. |
| 2021 | Without proper knowledge about the space, the government continued its efforts to contain the crypto industry within varied limitations by proposing a blanket ban on private currencies. following which they introduced the project of a private central bank digital currency instead. |
| 2022 | With crypto laws still under discussion, the budget bill that was passed in the Union Budget 2022 specified crypto tax regulations. |
HOW DO I PREPARE FOR THE 2023 CRYPTO TAX SEASON IN INDIA?
The large percentage of crypto gains that has been said to be liable for taxation has made the crypto investors very cautious about this new asset. With 1% TDS levied on crypto transactions, India is already putting a bar or freezing most of the profitable amount. Priya Ratnam, the CEO, Avisa Games Guild, a Web3 gaming guild and a crypto investor shared the same concern. Until the G20 Presidential meet, that is taking place in India puts up the concerns regarding crypto as a point of discussion, or if the Union Budget 2023 does not clarify the set regulations that the crypto community had been waiting for, the investors will have to continue with the pointers already made. Some of the things one can keep in mind are:
- Taxation gaps that persist in today’s market regarding crypto trades.
- Navigating the complexities of the 30% tax on the gains that has been levied.
- The NRI factor comes in a very undecided territory when it comes to taxation as the laws are different and income tax in India are based on only the amounts received or accrued, or deemed to accrue or arise in India.
Now, let us dive into the facts that are already set in place for Crypto Taxation in India.
WHAT ARE Virtual Digital ASSETS?
Before diving into the taxation and the ongoing conversation from the government regarding the virtual digital assets also known as 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
HOW IS 30% CRYPTO TAX CALCULATED IN INDIA?
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 30% crypto 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.
Example 1
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% crypto tax 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.
Example 2*
*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 remain as Rs 1 lakh which is the profit earned from the Bitcoin transaction
30% Tax on Crypto income for FY 2022-23: 30% of Rs 1 lakh = Rs 30,000 (plus surcharge and cess).
WHEN DO YOU HAVE TO PAY 30% TAX ON CRYPTO?
The entire 30% tax on any crypto assets will be deducted from the profits earned via various crypto tokens in an entire financial year. The starting of this 30% tax will be from the Assessment of the FY 2023-24.
CAN WE AVOID 30% CRYPTO TAX IN INDIA?
No, The tax measures announced by the Government on cryptos are comprehensive, and it is unlawful to evade taxes. Crypto exchanges have been working towards an environment that is in compliance with the government and all trades, and investments happening within the domain have records that will be visible to the tax department.
1% TDS ON CRYPTO ASSETS
According to the revised Income Tax Regulations, the 1% TDS is applicable on all sell transactions of the crypto assets. This will be effective for 1 July, 2022. However, please note that the TDS will be deducted on the final sale amount and not just on the profits. For TDS, it doesn’t matter if you earn a profit or book a loss on your trade. It will be deducted, no matter what.
Additional Reads:
1% TDS on Crypto – Simply explained with Infographics
COINDCX APP & COINDCX PRO TDS PROCESS
CoinDCX is dedicated in making your crypto-investment journey seamless and secure. To help you understand your crypto tax in India 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.
Know more on deduction of 1%TDS on Crypto – CoinDCX App.
Know more on deduction of 1% TDS on Crypto – CoinDCX Pro App.
CRYPTO TAX ON ANY LOSS FROM THE 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 assessed 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.
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.
HOW DO I PREPARE FOR THE 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 owned 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.
Additional Read: Crypto 1% TDS Glossary
Crypto Tax on Gifts received 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.
How are Crypto Airdrops Taxed in India?
Similar to how brands will taste out the feedback on new products by giving away samples to retail sellers, airdrop in the crypto space acts in a similar manner. Whenever any new token or NFTs are launched, some of them are airdropped to investors. Since this is not a direct investment, it can be divided into two parts. Firstly, the airdropped assets will be eligible for taxes under “other incomes”. Following the airdrop event, if investors hodl the assets and gain any profit from them, that will fall under the revised 30% crypto tax.
Read more on Crypto Airdrop Taxes
DO YOU HAVE TO PAY TAXES ON NFTS? (NON FUNGIBLE TOKENS)
If you are thinking about how taxes will be applied on NFTs, let us take a look at the scenario. According to the new Tax laws, NFTs or Non-Fungible Tokens also fall under the Virtual Digital Asset category. That means, if you have bought an NFT and have gained any profit from it, it will be taxable along with a surcharge and 4% cess.
HOW ARE DEFI TRANSACTIONS TAXED?
If we take a closer look, DeFi taxes will be applied via various other forms of DeFi crypto transactions, i.e., yield farming, crypto mining, crypto lending, and borrowing. For mining cryptos, the respective taxation can be of two types. If you have gained crypto tokens as a result of mining, it will be taxable under business income. The second type comes in, when you have HODL-ed the crypto and have gained profits from it. Then you have to pay the 30% tax when you are selling the asset.
FREQUENTLY ASKED QUESTIONS ON CRYPTO TAX IN INDIA
Q1. How will the 30% crypto tax be applicable on Crypto as a salary?
No, crypto received as salaries do not fall under the 30% tax module. Since it is a salary, it will fall under the “income from salary” taxations.
Q3. Is there any tax on Crypto Mining?
No. According to the crypto tax bill, crypto mining is not taxable. However, if you earn any crypto tokens as a result of mining, it will have to be filled as a business income.
Read more:
Top Queries on Crypto Tax 2022 by CoinDCX Community & Top Tweets on 1% TDS on Crypto
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