How and When you have to Pay Tax on Crypto

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Pay Tax on Crypto


Finance minister Nirmala Sitharaman in Union Budget 2022 announced that India will levy a steep tax at a flat rate of 30 per cent on virtual assets including cryptocurrency and Nonfungible tokens or NFTs. Budget 2022 also proposed the provision of tax deducted at source at 1 per cent levied on payments made of transfer of virtual assets. The cryptocurrency exchanges and traders welcomed the much-awaited policy framework for digital tokens. In the article, we will talk about the proposed cryptocurrency tax in detail, 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, for the taxation of virtual digital assets, I propose to provide that any income from transfer of any virtual digital asset shall be taxed at the rate of 30 per cent,” the finance minister said while presenting the Budget 2022.

“The proposed section 115BBH seeks to provide that where the total income of an assessee includes any income from transfer of any virtual digital asset, the income tax payable shall be the aggregate of the amount of income-tax calculated on income of transfer of any virtual digital asset, digital asset at the rate of 30 per cent and the amount of income-tax with which the assessee would have been chargeable had the total income of the assessee been reduced by the aggregate of the income from transfer of virtual digital asset,” Budget 2022 Memorandum said.

Crypto Tax Decoded

We have explained what the newly proposed crypto tax means for you

1) The income from the sale of virtual assets such as cryptocurrencies, NFTs will be taxed at a flat rate of 30 per cent

2) There will be no deduction for any expenses incurred on cryptocurrency transactions, other than cost of acquiring such assets.

3) Loss incurred from cryptocurrency or virtual assets cannot be set-off against any other income (shares or mutual funds) of the taxpayer.

4) Loss arising from digital asset cannot be carried forward to the next year

5) Additionally, any payment of proceeds to a taxpayer from the sale of digital assets will attract a 1 per cent TDS on transactions above Rs 50,000 in a year.

6) Gifting cryptocurrencies and NFTs will also be taxable for the recipient.

Example: If you have sold virtual digital assets worth Rs 1 lakh and the cost of acquisition is Rs 20,000. The net income from the sale of virtual asset will be Rs 80,000. (Rs 1,00,000-Rs 20,000). According to the new income tax law, there will be tax liability of Rs 24,000. It must be mentioned that loss of virtual assets can be settle against loss of virtual assets.

Now the biggest question is what will be considered as virtual assets

What are Virtual Assets?

Clarifying what will be virtual asset, Budget memorandum said, “virtual digital asset, a new clause (47A) is proposed to be inserted to section 2 of the Act. As per the proposed new clause, a virtual digital asset is proposed to mean any information or code or number or token (not being Indian currency or any foreign currency), generated through cryptographic means or otherwise, by whatever name called, providing a digital representation of value which is exchanged with or without consideration, with the promise or representation of having 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 schemes and can be transferred, stored or traded electronically.”

“Non fungible token and; any other token of similar nature are included in the definition,” it further added.

Explaining it in simpler words, Shivam Thakral, member of Blockchain and Crypto Assets Council (BACC) and CEO, BuyUcoin said, “Virtual Assets include all cryptocurrencies that may 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 will Crypto Tax be Applicable?

The newly proposed cryptocurrency tax will be applicable from Assessment Year 2023-24. That means all your income from crypto transactions in FY 2022-23 will be taxed at the rate of 30 per cent. Investors have to pay tax according to the existing taxation rules for FY 2021-22.

“The tax structure makes it such that crypto coins and tokens will be treated as assets rather than as currencies. It will however boost trading volumes and result in a higher proportion of the population becoming first-time crypto retail investors. This will happen because the speculation around ‘crypto being banned in India’ is put to rest,” said Atharva Sabnis, member of Blockchain and Crypto Assets Council (BACC) and founder and CEO, NFT Labs,Inc.

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