India crypto tax explained

India crypto tax explained

After years of ambiguity about the growing crypto industry in India, the central government has released a new tax regulation on crypto

The Indian government has decided to impose a 30% crypto tax, plus an additional 1% tax deduction at source (TDS) on the crypto sector. The fact that the Indian government has decided to bring the crypto sector under its tax ambit is a good first step towards the adoption of crypto.

The announcement was made by Indian Finance Minister, Nirmala Sitaraman during the annual Budget 2022-23 speech on 1 February 2022.

In the media, there have been many negative stories about crypto, including that the government was considering a ban; some even said that crypto holders, traders would be jailed without bail. However, these reports proved false.

In order to clarify what the government believes about crypto, the finance minister said that any crypto holders making a profit will be taxed at 30%.

Other than that, 1% will be charged on every transaction on crypto. Buying or selling on the exchanges will attract this. However, this has been seen as a very important development for crypto holders in India, even though many believe that the tax bracket is very high. 

Speaking to a TV news channel, the finance minister said that even though the crypto bill is yet to be passed, that doesn’t stop the government from taxing crypto when high profits are made.

When asked about when the tax will be imposed looking at the Reserve Bank of India (RBI) circular in 2018, she said that there will be no retrospective tax collections.

No tax on loss

She also said that only profits made from virtual assets will be taxed, no loss made from crypto will come under the tax. However, the minister also made it very clear that no deduction in respect of any expenditure or allowance is to be allowed while computing such income except the cost of acquisition. Loss from the transfer of virtual digital assets cannot be set off against any other income.

The tax structure is yet not imposed and will only be implemented once the finance bill is passed in the parliament with effect from 1 April 2022 to March 2023.

Various ideas are being discussed on how to implement it in the government.

Some crypto experts believe that the government will ask the crypto exchange to embed the tax provision in their application platforms so that it can be deducted on their end and sent to the government directly. So the exchange will have to take the responsibility to collect tax on behalf of the government.  

A brief explanation of how the tax structure would be like

If you have purchased a crypto token a year back with $ 100 and you are selling it for $300, then you will have to pay tax on $200 which is around $60 (30% of $200). 

Another scenario is that if you have purchased a token for $100 and if you sell it for $120, you only have to pay 30% tax on the $20 you made a profit. So, you will pay $6 as tax. 

However, there will be no tax on selling in loss, but you will have to pay 1% TDS on all transactions, whether it is bought or sold.

This 30% tax will also be valid on the purchase and sale of non-fungible tokens (NFTs) and Metaverse projects.

No clarity on DEX wallets

It is not yet clear how the government will impose a 30% tax, and an additional 1% TDS on decentralized wallets like MetaMask, Trust Wallet, Wallet Connect. 

Other than this, even if you send some crypto to your family, friends, or any other wallets as a gift, the receiver will be liable to pay 30% tax. 

Details are not yet clear on what will happen to staking, farming, and lending of crypto.

Crypto experts believe that governments have given a signal to the whole world to find ways to adopt crypto by taxing or by bringing it under the legal framework. 

Recently, at the World Economic Forum (WEF), Indian prime minister, Narendra Modi has called on the countries to work together in bringing a global framework for crypto. 

However, crypto tax is not good news for daily trading, which is making huge profits daily, as now after the budget is approved, even small traders will be paying 1% TDS on each trade and this will deter daily trading.

However, for long-term investments, this is very good news and will make India one of the leaders in crypto adoption globally.

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Disclaimer: This article is for informational purposes only. The information does not constitute an offer to buy or sell, or a recommendation or endorsement of any products, services, or companies. Klever.Finance does not provide financial, tax, legal, or accounting advice. There is no responsibility on the part of the company or the author for any loss or damage arising from or related to the use of or reliance on any content, goods or services mentioned in this article.

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