Cryptocurrency, often termed digital or virtual currency, has shifted the dynamics of global finance. Predominantly decentralized, these currencies offer transparency and security due to their foundation in blockchain technology. Among them, Bitcoin, Ethereum, and Solana stand out. But with its rising influence on global economies comes the question of its regulatory and taxation landscape, especially in countries like India.
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What Are Cryptocurrencies and Why Do They Matter?
In layman terms, the term ‘crypto’ represents ‘secret’ or ‘concealed’. In this context, cryptocurrency is a concealed digital currency encrypted and used over a blockchain network. With the likes of Bitcoin, termed the “Usain Bolt” of the crypto realm, delivering multi-fold returns within a short span, it’s no wonder that an estimated 15% of the Indian population between the ages of 18 and 60 has ventured into crypto investments. The primary allure? Stellar returns and previously tax-free benefits. However, the taxation scenario shifted with the introduction of new guidelines in Budget 2022.
How Did the Taxation Scenario Change for Cryptocurrencies in India?
Capital gains from cryptocurrency transactions are now subject to a flat tax rate of 30%. So, if you gain ₹2,00,000 from a trade, you’ll be levied ₹60,000 as tax. Intriguingly, the system doesn’t consider set-offs from losses. This means if you gain ₹2,00,000 on one trade but have a loss of ₹50,000 on another, the taxable amount remains ₹2,00,000.
Are There Any Deductions at the Source for Crypto Transactions?
Yes, as stipulated by Section 194S of the Income Tax Act, a 1% TDS is applied to keep track of transactions. This deduction is imposed irrespective of the transaction’s nature, be it in cash, a mix of cash and another VDA, or exclusively another VDA. The owner of the blockchain where the transactions occur is the one who’s taxed, aligning with Indian e-commerce regulations.
What Happens if One Doesn’t File Their ITR with a Significant TDS?
According to Section 206AB of the Income-Tax Act, 1961, failing to file your ITR when your TDS exceeds ₹50,000 annually will lead to a TDS deduction at 5%.
When Are Individuals Liable for Crypto Taxes?
Employees dabbling in cryptocurrency trading will be subjected to taxes according to their specific income tax brackets. From FY23 onwards, capital gains on such investments will attract a flat 30% tax, irrespective of one’s slab. Furthermore, if someone gifts you digital assets, you, as the receiver, will be taxed.
Is There a Clear Framework for Crypto Taxes in India?
Although the government has delineated the tax structure for cryptocurrencies, it doesn’t signal their legalization in India. The lack of a clear valuation method for cryptocurrencies casts doubts on the Indian tax structure. Some even opine that this tax introduction aims to deter individuals from crypto investments.
Is It Possible to Evade the 30% Crypto Tax?
Evading taxes is unlawful. Nevertheless, any gains realized before April 2022 are exempt from taxes, providing a brief respite for investors.
How Can One Stay Compliant with Crypto Taxes in India?
With tools like ClearTax introducing India’s only end-to-end crypto filing portal, tax compliance has become more manageable. This platform automatically consolidates data from over 100 exchanges, helping in computing taxes and identifying tax-saving opportunities.
In conclusion, as the world of cryptocurrency expands, offering unprecedented financial opportunities, it becomes imperative to stay abreast of taxation guidelines to ensure compliance and avert legal complications. With the repeated emphasis from the government on the illicit nature of cryptos, have you safeguarded your investments and navigated the crypto tax maze in India?
What’s Your Opinion on Cryptocurrency Legalization in India?
While debates continue, one can’t deny the significant impact of cryptocurrencies. Do you believe it’s high time for crypto to attain legal status in India? Comment below.
Watch our video to learn more about How to file Crypto ITR? ITR filling TUTORIAL for CRYPTO INVESTORS