Cryptocurrency and its Taxation in India


Over the past few years, the cryptocurrency market in India has experienced its fair share of ups and downs. The business still struggles to gain banking access even after the Indian Supreme Court overturned the ban on cryptos in banking. 

The sector has been pushing for favorable regulations aggressively. Budget 2022 made no explicit mention of any regulatory clarity. It did, however, unveil a fresh method of taxing cryptocurrency. In order to tax cryptocurrency in India,  all gains on the transfer of virtual digital assets (VDAs) at a 30% rate without allowing for any expense deductions or loss setoffs, Section 115 BBH was enacted. In order to broaden the tax base, Section 194S was also added, which requires TDS to be deducted at a rate of 1% from all transfers of VDAs.

These restrictions will take effect in the financial year 2022-2023. (FY23).

Calculating Crypto taxes for FY23

An investor in cryptocurrencies may earn a variety of earnings, including salary, consultancy fees, capital gains, and lending. 

Since the taxes of these incomes was not specifically addressed in Budget 2022, a judgement had to be formed by reading the current laws.

Tax on cryptocurrency salary

Receiving compensation in cryptocurrency is rather popular because many Indians work for numerous crypto initiatives. If an employee receives payment in cryptocurrency, the taxable portion of their wage will be equal to the fair market value of the cryptocurrency in Indian rupees. This revenue will be taxed as salary income at the corresponding slab rates.

Gains from cryptocurrency are subject to tax

Trading gains from cryptocurrencies will now be taxed at a rate of 30% without any other deductions outside the cost of purchase. Furthermore, gains from one cryptocurrency transaction cannot offset losses from another’s. As a result, starting in FY23, gains from the crypto portfolio will be taxed at a fixed rate without any deduction for length of holding. Since tax may become due even when a trader suffers a net loss overall, an investor will need to be proactive and cautious when trading crypto assets.

Tax on Interest on Loans

Among investors who want to hold assets for a long time, lending of crypto assets is fairly common. If a crypto investor lends his or her assets and receives a return, the interest will be taxed as income from other sources at the time of actual receipt based on the tokens’ worth in Indian rupees and subject to the appropriate slab rates for people.

Digitized Central Bank Currency

In response to a question on the Indian Digital Rupee, the Reserve Bank of India (RBI) has begun preparations for the progressive implementation of the announcement made regarding the introduction of the Central Bank Digital Currency (CBDC) in the budget speech for 2022–2023.

It is allowed to transfer tangible assets using NFTs.

Legal enforcement exists for the transfer of NFTs, which also covers the transfer of an underlying tangible asset.

According to Central Government notification no. 75/2022 dated June 30, 2012, a token that meets the requirements to be a virtual digital asset is designated as a non-fungible token under clause (47A) of subclause (a) of the Act. However, this definition excludes non-fungible tokens whose transfer results in the transfer of ownership of an underlying tangible asset and the transfer of ownership of such underlying tangible asset is legally enforceable.

Nirmala Sitharaman, the finance minister, had stated in the Lok Sabha that although the RBI supports outlawing virtual currencies, international cooperation is needed to control them. Binocs is the hub which caters to all the crypto portfolio management and tracking activities at your fingertips. 

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