2024-12-26T09:06:04+0000

Budget 2022 Update: Income from transfer of digital assets such as crypto to be taxed at 30%. No deductions will be allowed except the cost of acquisition of digital assets. Loss on sale of digital assets cannot be set off against any other income. TDS at 1% will be levied above the threshold. Gifting of digital assets will also be taxable in the hands of the receiver. A cryptocurrency can be defined as a decentralized digital asset and a medium of exchange based on blockchain technology. Taxation on the gain from the sale of crypto Since the cryptocurrency is not yet legalized by the Reserve Bank of India (RBI), it cannot escape from taxability. An investor earning profits from the sale of cryptocurrency must pay income tax. All incomes, except exempted explicitly by the Income Tax Act, are subject to tax. Till we receive any clarification from the income tax department, investors must pay income tax on the crypto-transactions based on the nature of the transactions. As per the standard income tax rules, the gains on the crypto-transactions would become taxable as (i) Business income or (ii) Capital gains. This classification will depend on the investors’ intention and nature of these transactions. If there are frequent trades and high volumes, gains from the cryptocurrency transactions will be taxed as ‘business income’. However, they will be taxed as ‘capital gains’ if the purpose of owning them is primarily to benefit from longer-term appreciation in value with fewer trades. The nature of classification has to be reviewed for every taxpayer, and taxpayers must take the help of an expert for accurate reporting. If classified under capital gains : If the crypto-transactions are classified as ‘investments’, they will be considered capital gains or losses under the head ‘capital gain’. If the sale value of the transaction is more than the cost, it will be regarded as ‘capital gain’, and if the price is higher than the sale value, it will be considered ‘capital losses’. As per the applicable income tax slabs, short-term capital gains tax will be leviable if crypto assets are held for less than three years ( Less than or equal to 36 months). If the crypto-assets are sold after holding the investment for three years ( more than 36 months), they will be treated as long-term investments and taxed at 20% with indexation benefit. In case of capital losses : There is no directive from the income tax authorities regarding the treatment of capital losses. However, if your sale transaction has resulted in a loss, we suggest you consult an expert. If classified as business income : If crypto transactions are reported as business income, the implication of Goods and Services Tax (GST law) also needs to be examined. All the direct and indirect expenses will be allowed as deductions from the profits on the sale of the crypto assets. The profits will be added to the other income and taxed as per the income tax slab rates. (Source: Clear Tax)