Everything You Need to Know about Crypto Tax in India

The draft Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 was proposed by the Indian Government and has become a key area of discussion amongst academicians and experts alike. It explores the emergence of cryptocurrency in the modern world. The Global Financial Crisis of 2008, triggered by the collapse of Lehman Brothers bank, devastated the international economy. Against this backdrop, a paper titled ‘Bitcoin’ was published under the pseudonym ‘Satoshi Nakamoto’, arguing for a peer-to-peer electronic cash network. Soon after, the first block of Bitcoin – the ‘Genesis Block’ was unveiled, signifying a landmark in the field of cryptocurrency. Coming to India, it took a few years for the currency to pick up the pace. By 2012-13, Bitcoin started gaining some prominence within the international community, which left its imprint on India. This article briefly describes the History Of Cryptocurrency, Cryptocurrency Tax In India, & Recent Updates in Crypto Tax in India.

What is Cryptocurrency?

A cryptocurrency, crypto-currency, or crypto is a digital asset that is designed to work as a medium of exchange where an individual coin ownership records are stored in a ledger which exists in a form of a computerized database using strong cryptography to secure transaction records, to control the creation of additional coins, and to verify the transfer of coin ownership. In simple words, there is no currency existing in the physical form, and there is no one particular regulator for regulating these exchanges. Cryptocurrency basically relies on exchanging digital information from one person to another.

Crypto Currency was invented after the 2008 Global Economic Crisis, to have a decentralized form of currency for individuals. This was created with the intent to prevent any actions or inactions where the governments or the banks could completely tremble the economy of the World. In 2009, the first decentralized cryptocurrency, bitcoin, was created by presumably pseudonymous developer Satoshi Nakamoto. Bitcoin was created as a way for people to engage in financial transactions without relying on banks or governments. It’s a peer-to-peer currency. No one controls your money, but yourself and these transactions are generated, secured and verified because of the use of cryptography. There are more than 1600 crypto currencies today.

Cryptocurrency Tax in India

The Union Budget 2022 proposed to classify cryptos as virtual digital assets (VDA). Even as crypto has been specified as assets, tax treatment is not like other assets. As per the new crypto tax rule, an individual has to pay a flat 30 percent tax on income earned from transfer of cryptocurrencies and other virtual digital assets, including NFTs.  According to Archit Gupta, founder and CEO of Clear (formerly Clear tax), the taxpayer is not allowed any deduction from the crypto asset’s sale price, except the cost of acquisition. The government recently clarified that the mining infrastructure costs will not be included in calculation of the cost of acquisition.

To tax Crypto, a new section 115BBH was introduced in the 2022 budget. This section imposes a 30% tax (plus applicable surcharge and 4% cess) on profits made from Crypto trading (starting from April 1, 2022). This rate is the same as India’s highest income tax bracket (excluding surcharge and cess). Private investors, commercial traders, and anyone else who transfers Crypto assets in a given fiscal year are subject to this tax.

Furthermore, the 30% tax rate will apply regardless of the nature of the income. So it makes no difference whether it is investment income or business income, and there is no distinction between short-term and long-term gains.

Recent Updates in Crypto Tax in India

In June 2022, the CBDT amended the Income Tax rules in an official order to specify how firms will comply with the new rules and the reporting format for the same. The new rules require exchanges to deduct tax from the Crypto buyer under Section 194S of India’s Income Tax Act. These taxes must also be paid to the Government within 30 days of the end of the month in which they were deducted. According to the rules, a TDS certificate must be issued to the payee within 15 days of the due date for reporting the tax to the Government. Users require these certificates to claim a tax refund from the Government.

Conclusion

The Government’s tax measures on Cryptocurrency are comprehensive, and tax evasion is impossible. Crypto exchanges have been working towards Government-compliant environment in which all trades and investments within the domain will be visible to the tax department transparently. Investors who want to invest or trade in virtual digital assets should become acquainted with the new tax regime and, ideally, consult a tax advisor before beginning their investment journey.