A tax rate of 30% has been imposed on the income generated upon the transfer of all digital assets in India.
The groundbreaking decision has been put forward by Finance Minister Nirmala Sitharaman on the 1st of Feb 2020, while announcing the Union Budget 2022.
The trend of Digital assets has very recently attracted the Indian youth to follow behind. In a very short span of time, cryptocurrency has become a popular investment choice for Indian youth.
Currently, India stands to be a very important digital trading hub with almost 15-20 million crypto investors in the country.
In fact, the total crypto holdings of investors across India are estimated to be over 40,000 crore Rupees(almost $5 billion dollars).
Governments across the world have always been vary of the digital assets such as cryptocurrency because of the fact that these are decentralized and therefore can not be regulated by the government.
In the past year, many countries across the world have shown solidarity with cryptocurrencies such as El Salvadore announcing Bitcoin as legal tender, while a few countries, like China, have actively curbed crypto-activities by implementing various regulations against its usage.
Consequently, the Indian crypto community has been actively seeking to determine what the Indian government's approach gonna be in regards to the operation of digital assets in the country.
Read more about Digital Rupee announced in the Union Budget 2020.
There was even suspicion that cryptocurrencies might eventually get banned in the nation.
However, the government with the recent application of the tax on digital assets has to some extent, given a thumbs up to the legality of cryptocurrencies in the country.
How much tax on cryptocurrency would be applicable?
According to the finance minister, the magnitude and frequency of digital asset transactions across the country have surged at a rapid rate. Thus, a specific tax regime is essential at this point.
A 30% tax is applicable on any income generated from the transfer of any digital assets. Digital assets may refer to cryptocurrencies, NFTs, or any other types of digital currencies.
Note that the tax is applicable on the gains that you make on transferring the assets, and not on the actual transfers.
For example: if you were to buy a million dogecoin today at Rs 10, and sell it one year later at a profit of Rs 20, You would have made a total gain of 1,00,00,000 Rs, and thus would have to pay a tax of 30% or Rs. 30,00,000.
Additionally, to capture the transaction details, a TDS of 1% has to be made on payment of any transfer of any digital assets.
From when will the tax on cryptocurrency be applicable?
Although a detailed report on the intricacies of the tax provisions regarding digital assets is yet to arrive, the tax implementation would be established during the first half of the year 2022.
The government will levy a 30% tax on gains made from the transfer of any private digital assets from April 1, 2022.
Furthermore, the 1% TDS implementation would be executed from July 1, 2022.
In essence, any profits that you make on the transfer of cryptocurrency after 1 April will be taxed according to the new provisions.
Is there any subsidy against losses incurred in cryptocurrency?
An almost logical question followed up by the Indian crypto community is this, “If our crypto gains are to be taxed by 30%, will we also be able to set off our losses against our income tax?”
The unfortunate answer is “No!”.
The Finance Minister has already clarified that in the case of digital assets, no set-off will be allowed in case of losses.
According to her, “no deduction in respect of any expenditure or allowance shall be allowed while computing such income except the cost of acquisition. The loss from the transfer of virtual digital assets cannot be set off against any other income.”
Thus, the short answer is,
No! You won't be getting any deductions in your income tax on the basis of your losses against cryptocurrency.
How to save tax on cryptocurrency?
The highest tax slab rate of 30% has been levied on gains incurred from the transfer of digital assets.
Naturally, this does put a lot of crypto investors in shambles over the fact that they have to now start forking over 30% of their crypto gains.
However, it can be really simple to avoid paying tax on your crypto gains.
The answer is simple, don't make gains!
No! We are not asking you to intentionally incur losses in your crypto-trading.
However, the terms state that the tax is applicable only on the gains generated from the transfer of digital assets.
Thus, If you hold on to your digital assets without selling them off, you can delay the tax that you have to pay on them.
Note the keyword is delay!
Once you sell off the assets and register the gains, you have to pay the tax then.
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