Tax on Cryptocurrency: 30% Tax on Digital Assets (Crypto Taxation Guide)

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In Union Budget government announced tax provisions on cryptocurrency in India. According to the Budget document income from the transfer of digital assets such as cryptocurrency will be taxed at 30%. Except for the expense of acquiring digital assets, no deductions will be permitted. Losses on the sale of digital assets cannot be offset against other income. Above the threshold, a 1% TDS will be imposed. Gifting digital assets will be taxable in the recipient’s hands as well.

TDS of 1% was introduced to record transaction details and keep track of crypto asset investments. As a result, each time you buy a crypto asset (up to a specified threshold) 1% TDS will be deducted from the transaction value in the financial year.

Key Takeaways

  • Income derived from the transfer of any virtual digital asset will be taxed at a rate of 30%.
  • Payments for the transfer of virtual assets above a specified monetary threshold will be subject to a 1% TDS.
  • It is proposed that a gift of virtual digital assets be taxed in the recipient’s hands.

When will you have to pay a 30% tax on cryptocurrency earnings?

According to the Budget, starting Assessment Year 2023-24, a 30% tax on cryptocurrency and other virtual digital assets will be imposed. That means that in FY 2022-23, all of your cryptocurrency revenue will be taxed at a rate of 30%.

Tax calculation: Will you have to pay taxes on your cryptocurrency profits and losses?

There is no deduction (other than the cost of purchase) allowed against any expenditure or allowance for virtual assets for computational purposes. The government has stated that any loss incurred as a result of the transfer of virtual assets cannot be deducted from other earnings.

Losses incurred as a result of the transfer of crypto assets cannot be offset against other income and cannot be carried forward. However, a loss from the transfer of crypto assets might be offset by a gain from the same financial year’s transfer of crypto assets.

For example

Assume Mr. X invests ₹100,000 in cryptocurrency and receives 10,000 units in return. He intends to sell them in five instalments of 2,000 pieces each, for ₹ 15,000, ₹ 25,000, ₹ 40,000, ₹ 75,000, and ₹ 5,000, respectively. As a result, Mr. X earned ₹ 160,000 in exchange for a ₹100,000 investment. As a result, he will be required to pay tax at a rate of 30% on his net income of ₹ 60,000, which will be ₹ 18,000 (i.e. 30% of ₹ 60,000).

Will you have to pay taxes for holding cryptocurrency?

You will only have to pay tax if you gain money via crypto or other virtual digital assets transactions, transfers, or exchanges. According to experts, there is no tax on crypto holdings.

Will virtual digital assets be subject to long-term and short-term capital gains?

In virtual digital assets, there is no distinction between long-term and short-term. Every transaction, regardless of the holding term, will be subject to a 30% flat rate of income tax.

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