How is income from cryptocurrency taxed in india 2022 – 

Cryptocurrency Taxation – The 2022 budget imposes a 30% tax and TDS on crypto assets.

A cryptocurrency will be defined as a decentralized digital asset and a medium of exchange supported by blockchain technology.

Union Budget 2022 Outcome:

1. Income from the transfer of virtual digital assets like crypto, and NFTs is taxed at 30%.

2. No deduction, except the worth of the acquisition, goes to be allowed while reporting income from the transfer of digital assets.

3. Loss from digital assets cannot be launched against the opposite income.

4. Gifting of digital assets will attract tax within the hands of the receiver.

What Are Cryptocurrencies?

In layman’s language, cryptocurrencies are digital currencies designed to shop for goods and services, the same as our other used currencies. However, since the start, it’s largely been controversial thanks to its decentralized nature, meaning its operation with no intermediaries like banks, financial institutions, or central authorities.

Today, quite 1,500 virtual currencies, like Bitcoin, Ethereum, Litecoin, Dogecoin, Ripple, Matic, etc., are traded within the digital currency world. After the nationwide lockdown, cryptocurrency investment and trading volume increased significantly. The crypto investments have grown despite any precise regulation from the Indian Government or the banking concern in India.

Legality Of Cryptocurrency

So far, the Indian government has not yet granted any status of monetary system to cryptocurrencies.

In 2018, RBI attempted to impose a ban via way of means of proscribing banking centers to the crypto exchanges. However, the ban was ruled out by the Supreme Court on constitutional grounds and virtual exchange’s fundamental rights.

The tax department has not yet offered any clarification regarding the tax implications on the gains earned from the crypto transactions.

Is Crypto A ‘Currency’ Or An ‘Asset’?

Tax experts are contemplating the classification of the cryptocurrency between ‘currency’ or an ‘asset. Cryptocurrency and crypto assets are mostly interchangeable names.

However, classifying it as a ‘currency’ needs some legal backing from the govt, within the absence of which it’s safe to classify it as an ‘asset/property.

Since the tax implication would arise regardless of the legality status, classifying them as ‘assets’ would be a much better approach than any government clarification.

Further, the U.S government had also issued a notification classifying it as a ‘property’ and thereby levying financial gain taxes on the gain on sale of the cryptocurrencies.

Taxation On The Gain From The Sale Of Crypto

Since cryptocurrency isn’t yet legalized by the banking concern of India (RBI), it cannot throw off taxability. An investor earning profits from the sale of cryptocurrency must pay taxation.

All incomes, except exempted explicitly by the revenue enhancement Act, are subject to tax. Till we receive any clarification from the tax department, investors must pay taxes on the crypto-transactions supported by the character of the transactions.

As per the quality taxation rules, the gains on the crypto-transactions would become taxable as (i) Business income or (ii) Capital gains. This classification will rely upon the investors’ intention and also the nature of those transactions.

If there are frequent trades and high volumes, gains from the cryptocurrency transactions are taxed as ‘business income’.

However, they’ll be taxed as ‘capital gains’ if the aim of owning them is primarily to learn from longer-term appreciation in value with fewer trades.

The nature of classification needs to be reviewed for each taxpayer, and taxpayers must take the assistance of an expert for accurate reporting.

If Classified Under Capital Gains :

If the crypto-transactions are classified as ‘investments’, they’ll be considered capital gains or losses under the top ‘capital gain’.

If the sale value of the transaction is over the value, it’ll be thought to be ‘capital gain’, and if the worth is on top of the sale value, it’ll be considered ‘capital losses’.

As per the applicable taxation slabs, short-term capital gains tax are leviable if crypto assets are held for fewer than three years (<=36 months). If the crypto-assets are sold after holding the investment for 3 years (> 36 months), they’ll be treated as long-term investments and taxed at 20% with an indexation benefit.

In Case Of Capital Losses :

There is no directive from the revenue enhancement authorities regarding the treatment of capital losses. However, if your sale transaction has resulted in an exceeding loss, we recommend you consult an expert.

If Classified As Business Income :

If crypto transactions are reported as business income, the implication of products and Services Tax (GST law) also must be examined. All the direct and indirect expenses are allowed as deductions from the profits on the sale of the crypto assets. The profits are going to be added to the opposite income and taxed as per the taxation slab rates.

GST Angle If Treated As Business Income :

The taxable event for GST implication is the supply of products or services or both. The concept of supply is an inclusive one, and it covers an outsized number of transactions.

‘Services’ is defined as anything apart from goods, securities, and money. It includes activities associated with using money or its conversion by cash or the other mode that a separate consideration is charged.

Considering the above definition, GST may become applicable to the buying and selling of cryptocurrencies because of the supply of products or services.

The Central Economic Intelligence Bureau (CEIB) has proposed categorizing cryptocurrencies as intangible assets and applying GST on all crypto transactions. Since the govt. has not yet defined its taxability and therefore the proposal is under discussion, a general rate of 18% may likely become applicable going forward.

If your turnover has exceeded Rs 20 lakh, you’ll consider paying GST on your turnover; please get connected with an expert on this matter.

If Classified As Other Sources Of Income :

Crypto-assets may also be reported as ‘income from other sources while filing ITR and taxed accordingly. Income from other sources is additionally added to the full income and taxable as per the applicable tax slab of the taxpayer.

Also, there are views to treat the income from crypto assets as ‘speculation business income’ and taxed as per the very best tax slab. However, till any clarification is received from the revenue enhancement department, the taxpayers can like classify it as capital gains or ordinary business income.

Even though no clarification has been received from the taxation department, it’s essential to report the gains within the ITR and pay taxes on the gains.

Disclosure Of Crypto Assets In Schedule Of Assets And Liabilities

Ministry of Corporate Affairs (MCA) mandatory compliance in disclosing gains and losses in virtual currencies. Also, the price of cryptocurrency as on the record date is to be reported. Accordingly, changes are made in schedule III of the companies Act starting from 1 April 2021. This mandate is often considered the first move of the govt. . toward regulating cryptocurrencies.

Please note that this mandate is simply for companies, and no such compliance is required from individual taxpayers. However, reporting and paying taxes on the gains on cryptocurrency could also be a requirement for all.