Bitcoin trading: Bitcoin has seen a significant surge to nearly $90,000 within the past 24 hours, with much of the increase attributed to optimism surrounding the election victory of Donald Trump and the anticipation of crypto-friendly policies being implemented by the US government.
According to a report in Reuters, following Trump's win, Bitcoin has hit an all-time high and has risen by over 30% since November 5, 2024. The surge was expected by investors who believed that Trump's pro-crypto stance, evident throughout his campaign, would lead to such results. Additionally, other cryptocurrency assets like Dogecoin, Cardano, Ether, and Shiba Inu have also experienced gains of up to 150% in the past week.
The crypto journey in India has been turbulent, leading to mixed sentiments among investors when compared to their American counterparts. This disparity can be attributed to various factors such as the high taxation on cryptocurrency income and the elevated levels of volatility in the market.
Taxation of Bitcoins and likes
The Budget for the fiscal year 2022-23 introduced a flat tax rate of 30% on gains from Virtual Digital Assets (VDAs) or crypto assets, regardless of the individual's income tax slab rate. Additionally, a 1% tax deducted at source (TDS) was implemented on all transfers of such assets.
Key points regarding the tax deduction on Bitcoin trading include:
A new Section 2(47A) was added to the Income Tax Act to define and classify Virtual Digital Assets clearly.
Section 115BBH of the 2022 Budget imposes a 30% tax (plus a 4% cess) on profits from trading cryptocurrencies or other virtual digital assets starting from April 01, 2022.
Section 194S now imposes a 1% Tax at Source on crypto and other VDAs transfers exceeding INR 10,000 (or even INR 50,000 in certain cases) within the same financial year, effective from July 01, 2022.
Taxation on crypto transactions is applicable to a range of individuals, including private investors, commercial traders, and anyone involved in the transfer of digital assets within a specific financial year.
This tax rate is not dependent on the investor's income level and does not differentiate between short-term and long-term gains.
If the transaction takes place on an Indian exchange, the exchange will deduct the Tax Deducted at Source (TDS) and transfer the remaining balance to the seller. In this scenario, the buyer is not required to take any further action.
Taxation on crypto transactions
The Income Tax Department has the authority to deem your cryptocurrency transactions as taxable income, necessitating the payment of taxes at the individual tax rate upon receipt of such income. This obligation applies to various situations, such as receiving crypto as a gift, mining crypto coins, accepting payment in cryptocurrency, earning staking rewards, and receiving airdrops.
If you opt to sell, trade, or utilize the tokens obtained through the aforementioned methods at a later time, you will be subject to a Capital Gains Tax (CGT) of 30% on any profits you generate.
TDS on crypto trading
The introduction of Tax Deductible at Source (TDS) in conjunction with India's 30% crypto tax, as mandated in the Financial Budget 2022, is aimed at ensuring that crypto investors and traders are charged at the source for their transactions.
Under the TDS system, a person (the deductor) who is obligated to pay a specific amount to another party (deductee) must deduct the TDS amount from the total invoice value or payment at the source and submit it to the central government.
In the case of crypto transactions in India, the TDS amount is deducted at a rate of 1%.
How taxation was introduced
In 2018, the Central Board of Direct Taxes presented a draft scheme to the Union Finance Ministry to prohibit virtual currencies. Shortly after, the RBI instructed banks to refrain from engaging in cryptocurrency transactions, a decision that was later overturned by the Supreme Court in 2020.
Despite this, the banking regulator expressed concerns about crypto-assets, labeling them as a “macro-economic risk.” In July 2022, Finance Minister Nirmala Sitharaman stated in Parliament that international collaboration would be necessary for effective regulation or prohibition of cryptocurrencies, due to their borderless nature.
In 2022, the government imposed a 30% tax on any income generated from the transfer of virtual digital assets, along with a 1% tax deduction at source (TDS) on each transaction.