The Indian government has proposed a new tax system for cryptocurrency investors, requiring them to pay a 30% tax on their cryptocurrency gains. One of the biggest announcements in the Budget 2022 speech of the Finance Minister, Nirmala Sitharaman, was to impose a tax at the rate of 30% on the profits made from virtual digital assets (including cryptocurrencies). The Budget 2022 also defined Virtual Digital Assets as:
- Any information or code or number or token (not being Indian currency or foreign currency), generated through cryptographic means or otherwise, by whatever name called, providing a digital representation of value exchanged... with or without consideration, with the promise or representation of having inherent value, or functioning as a store of value or a unit of account, including its use in any financial transaction or investment, but not limited to investment schemes; and can be transferred, stored, or traded electronically.
- a non-fungible token or any other token of similar nature, by whatever name called;
- any other digital asset, as the Central Government, may, by notification in the Official Gazette specify:
Taxation on Cryptocurrency in India – Budget HighlightsBelow are the key highlights of Budget 2022 w.r.t. taxation on cryptocurrencies-
- Irrespective of the tax slab applicable on the assessee, a flat 30% tax is levied on gains made on the sale or transfer of cryptocurrencies.
- No benefit of indexation will be given in computing tax on gains.
- No set-off of losses or gains made from Virtual Digital assets is allowed with other sources of income or loss.
- Unlike other losses, losses made from the purchase and sale of Virtual Digital Currency cannot be carried forward.
- All Digital virtual assets will be treated as "property" for the purpose of gifting and will be taxable at the rate of 30% in the hand of the recipient. No exemption will be given to any recipient.
- A 1% TDS will be also be levied from July 1 2022 subject to certain conditions.
ExamplesLet us understand the above provisions with the help of some examples- Example 1. Aditya purchases cryptocurrency X for Rs. 5,000 in August 2019. He sold the cryptocurrency for Rs. 40,000 in the month of September 2022. A TDS of Rs.400 was deducted on such a sale. Gain on Sale of Cryptocurrency X = Rs. 35,000 Tax on Gain @ 30% plus cess = Rs. 10,920 TDS already deducted on sale = Rs. 400 Net tax payable by Aditya = Rs.10, 520 Example 2. Arun makes a profit on the sale of cryptocurrency Z of Rs. 75,000 in the year 2022-23. A TDS of Rs. 1,200 was deducted on such a sale. Also, Arun has incurred a loss of Rs. 1,50,000 in his business in the same financial year 2022-23. As stated above, Mr. Arun cannot set off the gain made on the sale of Cryptocurrency Z with the loss made in his business. Thus, he is liable to pay tax at the rate of 30% plus 4% cess on the gain of Rs. 75, 000. Therefore, Arun has to pay a tax of Rs.22, 590. Now since a TDs of Rs. 1,200 has already been deposited, net tax payable by Arun should be Rs. 21,390.
ConclusionThe amendment is a welcome move to bring much-needed clarity over the taxation of cryptocurrencies in India. However, there are still many issues on which budget is silent like
- The applicability of GST on Virtual Digital assets,
- Tax on the creation or development of new Virtual Digital Asset,
- The framework for transactions taking place between Indian Resident and Foreign Resident and FEMA implication
- The role of online platforms facilitating dealing of Cryptocurrencies and other digital assets, etc.