Your cryptocurrency transactions will be taxed. What it means?

Finance Minister Nirmala Sitharaman on Tuesday proposed taxing transactions of virtual digital assets like Bitcoin and Ethereum, which is ultimately a cryptocurrency tax.

Presenting the budget, Sitharaman also said that the Reserve Bank of India (RBI) will launch its own digital currency or cryptocurrency digital asset.

The announcement has ended long-running speculation on how the Indian government will approach the nascent digital currency space, especially given the concerns voiced by various sections.

Revenue from the transfer of virtual digital assets will be taxed at 30%, Finance Minister Nirmala Sitharaman said in her budget speech. However, losses from the sale of digital assets cannot be offset against other income, she added.

Industry estimates suggest that there are 15 to 20 million crypto investors in India, with crypto holdings totaling around €40,000 crore ($5.37 billion). No official data is available on the size of the Indian crypto market.

According to an October report by Chainalysis, an industry research firm, the crypto market in India grew 641% in the year ended June 2021.

Livemint decodes what taxing cryptocurrencies means for investors.

What is a virtual digital asset?

According to the Finance Bill, a virtual digital asset is any information or code or number or token (not Indian currency or foreign currency) generated by cryptographic means or otherwise however called that provides a digital representation of the value that with or exchanged for free, with a promise or representation that they have inherent value, or act as a store of value or unit of account, including their use in financial transactions or investments, but not limited to investment schemes, and may be transferred, stored or traded electronic.

Tax on digital currencies

The 30 percent tax on cryptocurrencies is independent of short-term or long-term holdings, unlike in the stock markets, where separate taxation is applied depending on the investment period.

Experts said that the 30% tax levied on income from the sale of cryptocurrency exceeds the tax rate on winnings from lotteries, game shows, puzzles, etc.

The government has stated its intention to pursue cryptocurrencies by launching its own digital rupee and seeking to tax profits from the sale of cryptocurrencies at a rate of 30%. A 1% TDS has also been proposed to help track down crypto profits, which would prevent crypto traders from escaping the tax net, said Anshuman Khanna, a director at ValPro.

Cryptocurrency investors must pay a 30% tax on the gains or income derived from the transfer of digital assets. There will also be a tax on any form of transfer of crypto, including in the form of gifts and from one wallet to another.

What experts say

“As expected, a cryptocurrency tax regime has been introduced. However, the proposed system appears to be strict and seems consistent with speculative income,” said Amit Singhania, Partner, Shardul Amarchand Mangaldas & Co.

“Taxation of virtual digital assets – at 30%. No deduction other than the acquisition cost. No offsetting against other income permitted. Tax deduction on sale with 1% over a certain threshold. Deduction for employer contribution to NPS increased from 10% to 14% for state employees on par with central government employees. Not extended to non-government employees,” said Saraswathi Kasturirangan, Partner, Deloitte India.

“The transition to virtual digital asset taxation gives the entire ecosystem, including investors and exchanges, transparency as we move forward. The 30% tax on virtual digital asset income, while high, is a positive move as it legitimizes crypto and suggests bullish sentiment towards further adoption of crypto and NFTs among all stakeholders in the country. The government has come a long way in its stance on crypto from last February to date and we are confident that this will usher in a new era of growth and innovation for India in a Web 3.0 world,” said Avinash Shekhar, CEO of ZebPay.

Harry Parikh, Associate Partner – M&A Tax and Regulatory Services, BDO India, said that a nonchalant introduction of digital currency taxation combined with a withholding tax on every transaction could lead to many compliance issues for crypto companies.

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source https://www.bisayanews.com/2022/02/01/your-cryptocurrency-transactions-will-be-taxed-what-it-means/