Finance Minister Nirmala Sitharaman announced in Union Budget 2022 that India will impose a hefty tax at a flat rate of 30 percent on virtual assets, including cryptocurrency and non-replaceable tokens or NFTs. The 2022 budget also proposed providing 1 percent withholding tax on payments for the transfer of virtual assets. The cryptocurrency exchanges and traders welcomed the long-awaited policy framework for digital tokens. In the article we will talk in detail about the proposed cryptocurrency tax, take a look
Budget 2022 introduced a new crypto tax
Budget 2022 proposed to introduce a new section 115BBH to levy income tax on cryptocurrencies and other virtual assets. Accordingly, I propose for the taxation of virtual digital assets that all income from transfers of virtual digital assets be taxed at the rate of 30 percent, said the finance minister at the presentation of the 2022 budget.
“The proposed Section 115BBH seeks to provide that where a valuer’s total income includes all income from the transfer of a virtual digital asset, the income tax payable is the aggregate of the amount of income tax calculated on the income from the transfer of a virtual digital asset. digital asset at the rate of 30 percent and the amount of income tax that the assessee would have been charged if the assessee’s total income had been reduced by the total income from the transfer of virtual digital assets,” Memorandum Budget 2022 said.
Crypto Tax Decrypted
We explained what the newly proposed crypto tax means for you
1) The income from the sale of virtual assets such as cryptocurrencies, NFTs is taxed at a flat rate of 30 percent
2) There will be no deduction for fees incurred for cryptocurrency transactions, except for the cost of acquiring such assets.
3) Losses incurred from cryptocurrency or virtual assets cannot be offset against other taxpayers’ income (stocks or mutual funds).
4) Loss due to digital assets cannot be carried forward to the following year
5) In addition, any payment of proceeds to a taxpayer from the sale of digital assets will attract a 1 percent TDS for transactions over Rs 50,000 in a year.
6) Donating cryptocurrencies and NFTs is also taxable to the recipient.
Example: If you have sold virtual digital assets worth Rs 1 lakh and the purchase cost is Rs 20,000. The net income from the sale of virtual assets will be Rs 80,000. (Rs 1,00,000-Rs 20,000). Under the new Income Tax Act, there is a tax liability of Rs 24,000. It should be noted that loss of virtual assets can be offset against loss of virtual assets.
The biggest question now is what counts as virtual assets
What are Virtual Assets?
To clarify what virtual assets will be, the budget note said: “For virtual digital assets, it is proposed to insert a new clause (47A) in section 2 of the law. According to the proposed new clause, a virtual digital asset is proposed to contain any information or mean code or number or token (other than Indian currency or foreign currency), generated by cryptographic means or otherwise, under any name, that provides a digital representation of value exchanged with or without consideration, with the promise or representation of inherent value, or functions as a store of value or a unit of account and includes its use in any financial transaction or investment, but not limited to, investment arrangements and may be electronically transferred, stored or traded.”
“Non-exchangeable token and; any other sign of a similar nature is included in the definition,” it further added.
Shivam Thakral, Member of Blockchain and Crypto Assets Council (BACC) and CEO, BuyUcoin explained it in simpler terms: “Virtual Assets encompass all cryptocurrencies that can be traded in India on multiple platforms, as well as all types of NFTs, both old and new, such as lands and other virtual experiences purchased on metaverse platforms,” said.
When does Crypto Tax apply?
The newly proposed cryptocurrency tax will apply from tax year 2023-24. That means all of your income from crypto transactions in FY 2022-23 will be taxed at the 30 percent rate. Investors must pay taxes under existing tax rules for FY 2021-22.
“The tax structure ensures that cryptocurrencies and tokens are treated as assets rather than currencies. However, it will boost trading volumes and lead to a larger segment of the population becoming crypto retail investors for the first time. This will happen as the speculation about ‘crypto being banned in India’ has calmed down,” said Atharva Sabnis, Blockchain and Crypto Assets Council (BACC) Member and Founder and CEO, NFT Labs, Inc.
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