The taxation of cryptocurrency in India has recently been a hot topic of debate. With the country’s government actively considering the taxation of virtual currency, many investors and enthusiasts are eagerly awaiting the outcome. It is important to note that the Indian government has yet to officially announce any stringent regulations, but the possibility of a framework is very real.
Cryptocurrency is a decentralized digital asset that is used as a medium of exchange or store of value. It is often referred to as “digital” or “virtual” currency, as it is only available electronically. Cryptocurrencies such as Bitcoin, Ethereum, Litecoin, Ripple, and others have grown in popularity, with their market capitalization estimated to be over $200 billion.
The Indian government has been considering the taxation of cryptocurrency for some time now. In April 2018, the government constituted a panel to explore the possibility of regulating the digital asset class. The panel was tasked with studying the taxation and regulation of cryptocurrencies, as well as potential tax implications for Indian citizens and businesses.
The panel’s findings were recently released, and it suggested that cryptocurrencies should be taxed as capital gains. This would mean that any profits or losses made from trading cryptocurrency would be subject to applicable income taxes. The committee also recommended that cryptocurrency should be treated as an asset class for taxation purposes.
In the FY 2022-23 union budget, the government declared that profits from crypto assets would be taxed at 30%, regardless of the individual’s income tax rate. In addition, a 1 percent withholding tax (TDS) was levied on the transfer of such assets.
Cryptocurrency investor Priya Ratnam believes that many people investing in crypto already have to pay the tax on their top rent. 30 percent of the TDS is a problem for frequent traders, like intraday and short-term traders.
On the other side of the spectrum, many industry experts believe that such a taxation policy would be counter-productive and would discourage the use of cryptocurrency in India. Critics also point out that the proposed taxation framework would make it difficult to accurately track profits and losses, as well as impose additional burdens on investors and businesses.
The government has also been working to create a digital currency that can be used for financial transactions. This digital currency, referred to as the “Digital Rupee,” is expected to be launched in 2023 and will enable citizens to make payments and transfers with ease.
The Reserve Bank of India (RBI) has taken a cautious stance towards cryptocurrency, banning banks from providing services to cryptocurrency exchanges. However, the government is in the process of introducing a regulatory framework for the sector, and it is expected that this will open up the sector to greater investment opportunities.
Complexities of taxing cryptocurrencies in India :
When it comes to computing and calculating the tax amount, experts warn that since gains in one crypto asset cannot be offset by losses in another, investors should bear in mind that they will have to pay taxes of 30 percent on any capital gain.
The tax experts feel there isn’t much clarity on how different types of crypto transactions should be treated. For example, there is not much clarity on how crypto airdrops are handled. Airdrops involve sending tokens into people’s wallets, either for free or in exchange for a small promotional service. “Say, I got one crypto token, which has a price of Rs 1 lakh. If I sell it for Rs 1.5 lakh, will the additional Rs 50,000 or the entire Rs 1.5 lakh be treated as capital gains? Would it be considered special income? Clarity on these classifications is expected, along with clarifications around the GST aspect of things,” added Agarwal.
Waging the NRI Factor :
Indian taxation is primarily based totally at the precept of the house of the man or woman and the supply of earnings. Worldwide earnings of Indian citizens is taxable in India. Non-citizens, however, are concern to supply–primarily based totally taxation, which means best quantities acquired or accrued, or deemed to accrue or get up in India are concern to earnings tax in India.
Given the shortage of readability over many factors of crypto taxation, specialists recommend that traders might be better off taking a CA’s or tax portal’s assistance in submitting their taxes this year.
They additionally recommend that traders keep a report of all alternate reviews and every transaction from the past five-seven years in case a tax audit arises.