With the 2022-2023 Union Budget, the government of India proposed 39 amendments to the Finance Bill, 2022, providing a degree of clarity on the tax structure of crypto assets. Under the said amendments, anyone holding cryptocurrencies would be required to report their gains or losses from the digital assets as a part of their income.
Income Tax Act 1961 states that crypto assets are “Any virtual digital asset (VDA) generated through cryptographic means, by whatever name they are called, carries a digital representation of value and can be exchanged with or without consideration.”
Section 115BBH includes the provisions for taxing crypto transactions in India and it states that any income from transfer of crypto assets will be taxed at 30%, which implies that income from digital assets would be taxable at a flat 30% rate irrespective of short or long term investments, while no deduction will be allowed beyond the cost of acquisition.
What does this mean for you?
Anyone holding cryptocurrencies would be required to report their gains or losses from the digital assets as a part of their income.
Any income from transfer of crypto will be taxed at 30%. Income from digital assets would be taxable at a flat 30% rate irrespective of short or long-term investment.
No deductions are allowed while computing such income, except the cost of acquisition. Losses cannot be set off against any other income.
Gift taxes (if any) will be the liability of the recipient.
Profits (realized gains) generated from trading, transferring into another crypto asset (VDA), or even converting to fiat currency are taxed at a flat rate of 30%. Whether you have sold crypto for more than you bought it for, traded tokens, or swapped the token for another, your realized profits on these assets are classified as taxable income.
Realized gains from the transfer of any virtual digital asset will be taxed at a flat 30% rate. Transfer of virtual digital assets means both crypto-to-fiat and crypto-to-crypto transactions.
For example: If you bought crypto assets for ₹100 and sold the same at a price of ₹200. Then, you will be required to pay 30% tax on ₹100 (income earned from the transaction).
Please keep in mind that you cannot set-off or carry forward losses arising from a crypto investment against profits to subsequent years. You also will not be able to set off gains of one VDA with the losses of another VDA, even within the same Financial Year.
Therefore, the total tax on crypto = (Selling price – Buying Price) * 30%.
Please note that the Vauld team is working on soon providing its users with exportable PnL data for transactions done on the platform in a given financial year, which users can use to accurately calculate their tax liability from transactions on Vauld, while preparing and filing their tax returns for the FY 2022-23 / AY 2023-24.
Knowing what you owe in tax is an important part of your overall investment strategy. Whether you’re determining your rate for short-term capital gains or calculating your capital losses this year, we highly recommend that your tax-related decisions and positions be independently discussed with your tax advisor/consultant.
Please note that Indian crypto regulations are fast-evolving. We will update the post, as soon as there’s a new development.
DISCLAIMER: The content of the blog is for informative purposes. It is not intended as investment/ financial advice.