Crypto Law India 2022: Everything you should know about the new Indian Crypto Tax law
Crypto Tax Law 2022 is the current burning topic of discussion amongst most investors, traders, and people dealing in or anyhow related to the crypto industry. The government had been dropping hints for a long time regarding banning or regulating crypto in India. But with the end of the previous financial year, all the speculations also came to an end and the new Crypto Law India 2022 was introduced.
The Crypto Tax Law 2022 bought tears of joy and sorrow together. On one hand, crypto was regulated by the government of India and not banned as in China. Whilst on the other side, our honorable government levied a hefty 30% tax on incomes from virtual digital assets + 1% TDS for crypto transfers.
The Indian government has for sure tightened the bolts for trading cryptocurrencies. The Finance Bill 2022 passed by the Lok Sabha has introduced a new section 115BBH dealing with taxes on virtual digital assets. Section 115BBH in crypto tax law India provides the method of computation and a 30% tax rate for the income arising from the transfer of Virtual Digital Assets (VDA) such as cryptocurrencies & NFTs.
According to the new tax law passed in Lok Sabha, gains from all virtual digital assets will be taxable @ 30% (plus cess and surcharges), and it will be applicable even if your taxable income is below Rs 2,50,000. Added, no deduction other than the cost of acquisition is allowed while computing the taxable amount.
How will the crypto tax be calculated and deducted?
If you have purchased crypto for ₹15k and sold it for ₹45k, your straightforward gain is ₹30k.
It would be taxed as under :
Sale consideration ₹45k
(Less) Cost of acquisition ₹15k
Income Tax 30% @ ₹30k comes to be ₹9k
Moreover, there is no such provision for setting off and carrying forward unclaimed losses. In other words, if you think that you will be able to wave off the tax by adjusting one crypto earnings’ loss with the other crypto’s profit. Let me tell you that for such a situation there is already a clause stated under the new crypto law.
Clause (2)(b) prohibits setting off losses from the crypto assets against income under “any other provision” of the IT Act. Also, the word ‘other’ has been dropped for VDAs under the bill.
It simply means that you are prohibited from hedging loss in cryptocurrency with gains of another digital asset. This means that if you have losses from Shiba Inu, they cannot be set off against profits earned from Bitcoin or any other VDA.
Speaking about the Finance Bill 2022 in the Lok Sabha, Finance Minister Nirmala Sitharaman said the government has proposed to tax virtual currencies because a lot of transactions are happening in that space. People are putting money, taking out, creating assets and money is being generated from it which arises the need for regulation.
Additionally, the amendment under the financial bill 2022 directs 1% tax deducted at source (TDS) on Indians buying or selling cryptos along with taxes on crypto gifts. Unlike, the 30% tax on capital gains in VDA, the TDS will come into effect starting on July 1, 2022. This will make it easier for the tax department to keep track of all crypto transactions.
The Crypto Bill 2022 proposed a 1% TDS on payments towards virtual currencies over Rs 10,000 in a year and taxation of such gifts in the hands of the recipient. The threshold limit for TDS will be Rs 50,000 a year for specified persons, which includes individuals and HUFs who need to get their accounts audited under the Income Tax Act.
The good thing is that we can claim a refund of TDS on a transaction involving loss. Therefore, filing an income tax return is recommended if you are entering into transactions in cryptocurrency.
This Indian crypto tax bill has led to mixed opinions and overwhelming responses in the blockchain industry. We believe that there is a need to regulate and tax cryptos. But according to us, in its current form, it is suspected to do more harm than good.
Nischal Shetty, Founder and CEO of WazirX, an Indian cryptocurrency exchange says that it will fail to provide desired results for the government due to no proper clearance on many things. 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 facilitative for the government or the crypto ecosystem of India.
Experts say that the proposed 30 percent tax, irrespective of whether crypto-assets are capital assets or not, can be harmful to investor growth. This move will make day-traders incapable of saving on taxes even if they are not in the income tax brackets currently.
What are your thoughts on the new Crypto Bill 2022? Do you support it or think it to be a drawback for crypto industry growth?
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