This is how cryptocurrency assets will be taxed from April 1 in India. 10 points

Cryptocurrency assets will be taxed: From 1st April 2022, some changes in the income tax rules announced by Finance Minister Nirmala Sitharaman while presenting Union Budget 2022 will get implemented. One of them is a tax on cryptocurrency and other digital assets. Nirmala Sitharaman in the Union Budget 2022 announced that “any income from transfer of any virtual digital asset shall be taxed at the rate of 30 per cent.”

“The new regime of flat 30% taxation on income from crypto assets from April 1, 2022, will ebb the sentiments for the new age asset class. Though, we hope that the crypto investors will back their investment thesis and stay in with the investment for longer periods,” said Kunal Jagdale, Founder, BitsAir Exchange.

How cryptocurrency assets will be taxed from April 1 explained in 10 points

1) Tax @ 30% on Digital Assets: The gain on the sale of cryptocurrency would be taxed at a 30% tax rate. This taxation would certainly impact post-tax returns of cryptocurrency transactions. “Only deduction from sale consideration can be the ‘cost of acquisition of cryptocurrency’. There won’t be any other expenses allowed to be deducted. Due to no set-off of loss from other sources of income, it will become very challenging to have a net profitable trade in cryptocurrency,” said Sujit Bangar, Founder, Taxbuddy.com

2) If you have purchased crypto for ₹15k and sold it for ₹45k, your straightforward gain is ₹30k.

It would be taxed as under :

Sale consideration ₹45k

Less cost of acquisition ₹15k

Taxable gain ₹30k

Income Tax @30% ₹9k

3) TDS on cryptocurrency transactions: TDS @1% has been proposed for transactions involving cryptocurrency. Sujit Bangar, Founder of Taxbuddy.com said that we may sell cryptocurrency at a profit or loss but TDS @1% would certainly happen. “We can claim a refund of TDS done on transaction involving loss. Therefore, it would be recommended to file an income tax return if you have entered into transactions in cryptocurrency,” added Sujit Bangar.

4) The threshold limit for TDS would be ₹50,000 a year for specified persons, which includes individuals/HUFs who are required to get their accounts audited under the I-T Act.

5) The provisions related to 1 per cent TDS will come into effect from July 1, 2022, while the gains will be taxed effectively April 1.

6) Crypto received as a gift would be taxable: If you receive a gift in form of cryptocurrency or any other virtual digital asset, it would be liable for taxation as a gift post-budget 2022.

7) Finance Minister Nirmala Sitharaman said that the scheme would not allow any deduction in respect of any expenditure or allowance while computing such income except the cost of acquisition.

8) Last week, the Lok Sabha approved taxation rules on virtual digital assets (VDAs) or "crypto tax" that was proposed in Budget 2022-23 by clearing the Finance Bill 2022. 

9) Under the bill, section 115BBH deals with taxes on virtual digital assets, while clause (2)(b) prohibits setting off a loss from crypto assets against income under "any other provision" of the IT Act. Also, the word "other" is dropped for VDAs under the bill.

“The Finance Act 2022 has inserted a new section for the taxation of virtual digital assets. Effective April 1, any income from the transfer of a virtual digital asset is proposed to be taxed at a flat rate of 30%. It has been further clarified that any loss incurred during the transfer of a virtual asset would not be allowed to be set off against any income (including gain from a sale of another virtual digital asset) under any provision of the act. Only the cost of acquiring such an asset can be claimed in this computation. This makes the government's stance very clear with respect to the taxation of a virtual digital asset. It would be interesting to see how value is attributed to an exchange of virtual digital asset and how a gift of such an asset is valued,” said Sridhar R, Partner- Tax, Grant Thornton Bharat

10) This would mean that loss from the transfer of virtual digital assets (VDA) will not be allowed to be set off against the income arising from the transfer of another VDA.