Crypto Tax: What you need to know

The budget was rumoured to have proposals to bring clarity on the taxation of cryptocurrency. This was especially so, as these products had gained significant traction in India and retail investors had started participating. 

With no clear regulatory policy in place and ambiguity on the taxation of cryptocurrencies, taxpayers in India were taking their own views and offering such income as capital gains or income from other sources. 

Also Read: Private crypto big threat to macroeconomic, financial stability: Shaktikanta Das
 
Budget 2022 clears the air on the taxation of cryptocurrencies. The following are some key takeaways for holders of cryptocurrencies:-
 
What is covered?

The terminology to tax cryptocurrencies has been kept wide to also include NFTs (non-fungible tokens). Together these are named "virtual digital assets". Virtual digital asset excludes Indian, foreign currency and the proposed Digital Rupee to be introduced by the Reserve Bank of India (RBI).

How is cryptocurrency taxed? 

Any income on transfer of cryptocurrency is taxed flat at the rate of 30%. No expense (other than the cost of acquisition) can be claimed. 

Let's take an example. Mr A has bought a cryptocurrency on January 15, 2022, for Rs 10,000 and decides to sell it on April 5, 2022, at Rs 30,000. Further, Mr A has a business income of around Rs 200,000 during Financial Year 2022-23.

In such a case Rs 20,000 being income arising from crypto transfer shall be taxed at a flat rate of 30%. The remaining income of Rs 200,000 being business income below the income tax slab will not be taxable.
 
From when is the crypto tax applicable? 

April 1, 2022 

 
Can I set off any other loss with profits generated on sale of cryptocurrency? 

No set off is allowed other than the loss on sale of another cryptocurrency in the same financial year.

In the above example, if Mr. A had incurred a business loss during FY 2022-23, then such loss cannot be set off against Rs 20,000 being the income from the sale of cryptocurrency.  

Also Read: India's cryptocurrency industry likely to take up tax rule revision with FinMin

Whether loss on sale of cryptocurrency can be adjusted with other income? 

No set off is allowed of crypto loss with other incomes 

In the above example, if instead of Rs 30,000, Mr. A had sold the cryptocurrency for Rs 2,000 and incurred a loss of Rs 8,000 (Rs 10,000 less Rs 2,000), such a loss cannot be set off against any other income. 

Whether loss on sale of cryptocurrency can be carried forward to subsequent year and adjusted with crypto income? 

No carry forward is allowed. 

Whether TDS is applicable on sale of cryptocurrency? 

The buyer of cryptocurrency will need to deduct a tax of one per cent on the purchase of cryptocurrency. Relaxation is given to the common man on purchase of cryptocurrency not more than Rs 50,000 in a financial year. 
 
From when TDS is applicable on sale of cryptocurrency? 

July 1, 2022 

Whether receipt of cryptocurrency without consideration or as gift is taxable? 

Receipt of cryptocurrency is taxable in the hands of the recipient under the head "income from other sources". The valuation rules to compute the tax are yet to be notified. 

It is clear that the Budget has disincentivised trading in cryptocurrency considering these investments are highly volatile. However, on the other hand, the government has clarified that trading in cryptocurrency is not illegal but cryptocurrency will never be recognised as legal tender.  

(Authored by Sridhar R, Partner, Tax at Grant Thornton Bharat.)