India’s Cryptocurrency Tax explained
On February 1, India’s finance minister Nirmala Sitharaman announced taxes on taxes on cryptocurrency profits in the Union Budget 2022-23. Now Lok Sabha has passed the Finance Bill, 2022 with crypto tax amendments. That means crypto tax will be implemented from April 1, 2022. Cryptocurrencies and NFTs fall in the category of virtual digital assets.
As per new changes, cryptocurrency profit attracts 30 percent taxes. If you bought a cryptocurrency at Rs. 1000 and sold it at 1500, your profit is Rs. 500. You will have to pay 30% tax on Rs. 500 profit i.e. Rs. 150. The tax is only on the profits, not on your holdings. You will have to pay only if you sell the crypto asset and made a profit.
Here it is worth noting that the new tax law doesn’t let you offset crypto losses against crypto gains. If you made a profit of Rs. 1000 on Dogecoin and a loss of Rs. 800 on Bitcoin, you will have to pay 30 percent tax on profit made on Dogecoin’s sale. That means you owe Rs. 300 tax even if your overall profit is just Rs. 200.
All crypto transactions will be subject to a 1 percent TDS. But this TDS can be set off against the total income tax at the end of the year. This TDS is on each crypto transaction. Even if you sell a crypto asset at loss, you will have to pay 1% TDS. If you bought Bitcoin at Rs. 1000 and sell it at Rs. 600. You will receive Rs. 594 because you will be charged TDS of Rs. 6 i.e. 1 percent of Rs. 600.
The government has also made it clear that mining infrastructure is not considered as the cost of acquisition. All the cryptocurrencies you have mined if your gain. If you have mined cryptocurrency worth Rs. 5000, you gain is Rs. 5000. You will have to pay Rs. 1500 tax on it.
NFTs are also considered virtual digital assets. If you make a profit by selling NFTs, you will be taxed. NFTs are sold and purchased using cryptocurrencies. When you will convert it into INR using any local crypto exchanges, you will be charged 1 percent TDS, and then you will have to pay 30% tax on it.
Tax on free cryptocurrencies you earned through different sources
There are several ways you can get free Bitcoins. For example, I received a considerable amount of Bitcoins for referring my friends to a Crypto exchange. If you didn’t invest in cryptocurrencies but earned it from different sources, you will still have to pay tax. For example, if you received Rs. 1000 worth of cryptocurrency, it is your gain. You will have to pay 30 percent of the tax.
I talked to some tax experts who told me that there are a few cases you can still save your crypto tax on free cryptocurrencies you earned. If the amount of money given to you is worth less than Rs. 50000, it will not be taxed. It is because this money could be considered a gift. But you can apply this case only if someone sent you the cryptocurrency. If you received it from a business, for example, I earned it for referring users, it will be considered as earning, not a gift.
So, there is confusion here. You need to contact a good CA at the filing of your ITR for more clarification on this matter.
What if I use foreign crypto exchanges?
If you are using a foreign crypto exchange like Binance, you still have to pay taxes. Foreign crypto exchanges will not deduct any TDS but you will have to pay a 30% tax on your gains. If you don’t you will be charged with heavy penalties when you get caught.
Indian Government wants to earn taxes but the new crypto tax in its current form doesn’t seem to be good. It will surely add a negative impact on the crypto market. I have also talked to a few industry experts and found that everyone is feeling the same.
“The proposed 30% tax irrespective of whether crypto-assets are capital assets or not will be detrimental to the investor growth that the industry has been seeing so far. This move will make day-traders incapable of saving on taxes even if they aren’t in the income tax brackets currently. Furthermore, not allowing investors to offset losses from one crypto trading pair by gains from another type will further deter crypto participation and throttle the industry growth,” said Nischal Shetty, Founder, and CEO, WazirX.
“We firmly believe that there is a need to regulate and tax crypto but in its current form, it is poised to do more harm than good. It will also fail to provide desired results for the government. It can result in cascading participation on Indian exchanges that adhere to the KYC norms and lead to a rise in capital outflow to foreign exchanges or to the ones that aren’t KYC compliant. This is not conducive for the government or the crypto ecosystem of India,” He added.
Another industry expert also thinks that the new tax will surely affect the market. Most investors will now focus on long-term investments instead of short-term profits.
“As a result of the new tax regime, investors will now be more cautious about which crypto they are investing in and when they are making profits. To avoid the heavy 30% tax on gains, people who’ve already invested in cryptocurrencies may book the profits before 1 April 2022. Though the investors will be apprehensive to make further investments, they will go for the long-term investments. On the other hand, it is definitely going to discourage the traders who try to make short-term profits,” Amit Nayak, CEO and co-founder Sahicoin.
He also hopes that the crypto tax will be improved with future amendments and will get more clarity in the coming months.
“From investing to developing crypto startups, we believe the new tax policy will have a huge impact on the native crypto industry at various levels. However, we are also positive that it would go through amendments in the future with more clarification on the regulation of cryptocurrencies,” Amit Nayak added
I also agree with their point of views. I am not sure why the government doesn’t want investors to offset losses. It seems the main purpose of the new crypto tax is to discourage crypto trading. If someone still takes risks and earns, collect taxes. Investors will still bet on cryptocurrencies but they will now make decisions considering long term investments and their profits and losses.
Most tech companies are now investing in Metaverse. Cryptocurrencies and NFTs are an important part of the Metaverse. So, no country should discourage Cryptocurrencies and NFTs.
Also read: Is Metaverse The Future of Workplaces
Individuals are earning by creating and selling NFTs are not happy with the new crypto tax. Irrespective of their tax slab, they will have to pay 30% tax on their earnings. I have seen several teens who are now interested in this growing sector and are earning by selling NFTs. Now when taxation is involved, they will have to contact a CA and take care of these things. Although the popularity of NFT is growing, this could hurt the NFT sector.
NFT adoption is growing. Several celebrities and companies are now launching NFTs to earn money by selling virtual assets. When asked about the effect of tax on NFTs, Amit nayak is hopeful.
“We don’t think the popularity of NFTs is going to diminish anytime soon. While the NFT adoption is steadily increasing at a global level from 2021, there was a mismatch between the supply and demand in the regional NFT marketplaces. With Bollywood stars and cricketers releasing their NFT collections, we can witness the hype of the NFTs in the country. Consequently, we are anticipating the surge in the popularity and adoption of NFTs this year,” Said Amit Nayak.
Cryptocurrency taxes in other countries
There are several countries that impose taxes on cryptocurrency gains. Check their cryptocurrency taxes.
United States: The United States identifies crypto as property, not currency. It imposes a tax between 0 to 37 percent on crypto gains.
United Kingdom: In the UK tax depends on a person’s overall taxable incoming, the size of the gain, and deducted allowances. The country imposes 10 percent for basic rate taxpayers and 20 percent for higher and additional rate taxpayers.
Australia: In Australia, the country imposes a 50 percent capital gains tax deduction if crypto is kept for more than 12 months.
Canada: Crypto capital gains are taxed at 50 percent.
Germany: Germany sees cryptocurrencies as private money. The country keeps cryptocurrencies profit tax-free if profit is less than 600 Euros in a calendar year. Sales of cryptocurrencies held over a year are tax exempt.
Italy: Italy imposes a 26% substitutive tax if someone converts cryptocurrencies to fiat currencies.
Netherlands: Netherlands imposes a 31 percent wealth tax if your total assets including crypto are worth 50,000 or more.
Here is a list of countries where cryptocurrencies are tax-free.
- El Salvador
- Cayman Islands
- Puerto Rico