A 30 percent tax rate, the same as the lottery winners' tax, will apply to cryptocurrency tax earnings beginning in April of this year. Virtual digital assets include Bitcoin, NFT, and their corresponding profits. However, the tax rate on stock trading varies between zero and 15 percent depending on the tax bracket in which it is lodged (if filed as a short-term capital gain). To avoid falling foul of the legislation in the fiscal year 2022-23, crypto investors will have to be aware of other requirements beyond the lottery-like tax rate.
Nearly ten million people in India are expected to utilize cryptocurrencies in 2021, with a trading volume of $100 billion. A $100 million (or 750 crores) annual increase in income tax is possible, according to the founder of the Indian crypto exchange WazirX.
Direct tax provisions in the budget for cryptocurrency
A flat 30% tax rate will be applied to any cryptocurrency tax income earned throughout the year. An individual who buys and sells a crypto asset for a profit of $2,000 for $12,000 would pay a 30% tax, or $600.
A person who acquired a cryptocurrency asset and has yet to sell it has earned no money yet, even when its value has climbed significantly. Because the profits on these crypto assets have not yet been "realized," they are not subject to taxation until part of the holdings is sold.
In the same way, if a year's worth of crypto transactions results in a loss with no gains produced, no taxes are due.
One percent TDS is required on every cryptocurrency tax transaction redemptions, which is likely to be deducted by the crypto exchange one uses. This implies that the TDS will be applied to the whole transaction amount even if you incur a loss.
Even if you had purchased Bitcoin at the current price and sold it for the same amount without profit, you would only earn back around $40,000 in cash. Even if you put the same 39,600 yen into Ethereum or NFTs and subsequently sell them at a loss, you will be out the same 39,204 yen thanks to TDS. Income tax owing at year's end might be reduced by this TDS collected.
Every transaction would quickly exhaust available capital if a percentage of revenues were collected upon redemption, as was pointed out by Nithin Kamath of the Zerodha trading platform. Even if an investor starts with a large sum of money, they will end up with less than half of it after their 69th transaction and less than a quarter after their 138th trade if market fluctuations are their primary source of income.
A deliberate attempt to stifle speculation by making individuals question whether or not a potential deal is worth the risk might be to blame. Experts have warned that the introduction of this TDS in July 2022 might significantly impact the volume of crypto trading in India.
As a result, tax returns must be submitted for refunds for up to a year, resulting in an opportunity cost of up to a year. Nonetheless, if a person's tax returns can indicate an overall loss from crypto trading, the income tax department may be able to reimburse the total TDS deducted during the year.
Provisions that fill up any remaining voids
If you get most of your revenue from crypto tax assets, you may declare it as business income on your tax return. However, this is an undesirable path because of the lack of allowable deductions for company expenses on crypto revenues. There will be no way to avoid the 30% crypto tax, nor will it be possible to present crypto tax revenues as capital gains, which are taxed at up to 20% plus a surcharge.
The government is debating whether or not to tax cryptocurrency mining as a product or a service to include it in the GST. In addition, the government plans to tax transactions on overseas cryptocurrency tax in India exchanges.
Until now, anybody earning less than the tax-free level (Rs. 2.5 lakh) — whether they were workers, students, or elderly citizens — was not subject to paying any taxes. However, with implementing a targeted crypto tax, it is unclear whether people who earn less than the tax level would be required to pay tax on their crypto income.
Tax returns filed by crypto investors for the period ending March 2022 might still show business expenditure deductions. If you're responsible for an advance tax payment, you'll have to act quickly. Advance tax payments must be made no later than 15 March 2022, and failing to do so will result in interest charges of one percent of the tax owing for each month that passes after the due date.
Tax rates on crypto and stock trading might vary from zero (if reported as business income in a zero tax bracket) to 15 percent for 2022-23. (if filed as a short-term capital gain).
The targeted tax does not guarantee the legality of crypto tax in India.
Nirmala Sitharaman, India's Finance Minister, made it clear that the future tax measures do not provide crypto 'legal standing,' even if it is not yet regulated. She said that a country's sovereign power to tax transactions is all that is required. A prior high court decision made it quite clear that income tax applies to all income, regardless of how it was obtained.
The finance ministry is still drafting legislation governing digital currency. It is anticipated to be available for public discussion in around six months, but no formal proposal has yet been offered to Parliament.