Crypto Assets to Attract 30% Tax; New Crypto Income Tax Rule Explained

Union Budget 2022 provided much-needed clarity on how digital currencies will be taxed in the country. The cryptocurrency has become extremely popular in India in recent years. With over 10 crore cryptocurrency investors, India has one of the largest digital token markets. It has long been a requirement of the investors to provide a fiscal framework for the investments in virtual currencies. Finance Minister Nirmala Sitharaman announced a new tax framework for cryptocurrency investors.

Union Budget 2022 proposed to tax the transfer of virtual assets or cryptocurrency assets at 30 percent. No deductions will be allowed except for the purchase cost, and no transaction loss may be carried forward, the finance minister said in Budget 2022.

“The proposed Section 115BBH seeks to provide that where the total income of
a valuer includes all income from the transfer of a virtual digital asset, the income tax payable is the total of the amount of income tax calculated on the income from the transfer of a virtual digital asset at the rate of 30% and the amount of income tax which the valuer would have been charged if the valuer’s total income had been reduced by the total revenue from the transfer of virtual digital assets,” according to the Union’s budget note.

“There is some clarity on the taxation of digital currencies. At first glance, it appears that digital currencies will be taxed, similar to speculative income, on a gross basis of 30 percent,” said Amit Singhania, partner, Shardul Amarchand Mangaldas & Co .

Furthermore, TDS will be imposed on payments for the transfer of crypto assets at a rate of 1 percent for transactions above a certain threshold. The finance minister also announced that crypto asset donations will be taxed in the hands of the recipient. “The introduction of TDS on crypto transfers will enable the government to better control crypto transactions,” Singhania explains.

Crypto Tax is a welcome move

“Tax clarity is a welcome move. Overall, it’s a huge relief to see our government adopting the progressive stance to move forward towards innovation. By introducing taxes, the government legitimizes the industry to a great extent. The majority of people, especially companies, who have been sitting on the sidelines due to uncertainties can now participate in crypto. Overall, it’s a positive step for the industry,” said Nischal Shetty, founder and CEO of WazirX

“This change will take effect on April 1, 2023 and will apply accordingly
with respect to the assessment year 2023-24 and subsequent assessment years,” said Union Budget.

“The move to tax virtual digital assets gives the entire ecosystem, including investors and exchanges, transparency on the road ahead. A 30 percent tax on virtual digital asset income, while high, is a positive step as it legitimizes crypto and signals an optimistic sentiment towards further adoption of crypto and NFTs among stakeholders in the country. The government has come a long way in its stance on crypto from last February to today 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 from ZebPay.

Read all the latest news, breaking news and Union Budget 2022 updates here.

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