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Understanding the taxation of Crypto in India

Understanding the taxation of Crypto in India
Background

Background

Govt. To Tax 
VDAs At 30%

Govt. To Tax
VDAs At 30%

India Has Highest
Crypto Owners

India Has Highest
Crypto Owners

No Regulation/Ban
On Its Trading

No Regulation/Ban
On Its Trading

Case Characteristics

Case Characteristics

  • Cryptocurrency is considered as the virtual currency which is protected by cryptography. It is safe and acts as a medium of exchange. The ownership of individual coins remained stored in a ledger which is held in a computerised database.
  • Bitcoin was the first cryptocurrency to hit the market in 2009.
  • As per an estimate, more than 8,000 cryptocurrencies exist as of January 2022.
  • The top 5 cryptocurrencies in India are Bitcoin, Dogecoin, Shiba Inu, Ethereum.
  • The top platforms used by Indians to trade in cryptocurrency are Paxful, Zebpay, CoinSwitch Kuber, Binance, Unocoin, BitBns and WazirX.
  • An older law had sought to impose a complete ban on all crypto-related activities including mining, buying, holding, selling, and dealing.
  • The new law in the Finance Bill 2022 will look towards making a clear distinction when it comes to cryptocurrency’s often used categorisation as a currency.
  • As of now, there are no regulations or bans on the use of cryptocurrencies in India.
  • The Reserve Bank of India’s (RBI) 2018 order banning banks from supporting crypto transactions, was reversed by the Supreme Court order of March 2020.
Fascinating Findings

Fascinating Findings

  • A Nasscom & WazirX report has forecasted that investments by Indians in cryptocurrency could touch $241 million by 2030.
  • In the Budget 2022, Finance Minister Nirmala Sitharaman announced that income from the transfer of any virtual assets will be taxed at 30%.
  • Even a gift of a virtual digital asset is also proposed to be taxed at the hand of the recipient.
  • Virtual Digital Assets (VDAs) mainly include crypto currencies, non-fungible token (NFT), etc. Prima facie, this excludes digital gold, central bank digital currency (CBDC) or any other traditional digital assets, and hence aimed at specifically taxing cryptocurrencies.
  • Further loss from transfer of such assets cannot be set off against any other income.
  • This is at par with the highest income tax slab applicable to individuals with an income in excess of Rs.15 lakhs per annum.
Actionable Alternatives

Actionable Alternatives

  • The long awaited clarification on taxation of cryptocurrency has been brought in the Finance Bill 2022. Virtual Digital Assets (VDAs) will be taxed at a blanketed rate of 30%.
  • A 1% tax deduction at source on payments made related to purchase of virtual assets will be done in order to capture details of all such crypto transactions.
  • RBI is soon going to introduce a Digital Rupee – a central bank digital currency (CBDC) using blockchain, that will be run by the Reserve Bank of India.

Remarkable Results

Capital Gains

Capital Gains

Cryptocurrency prior to April 1, 2022 could be taxable as capital gains or as income from business.

Govt. Recognition

Govt. Recognition

A sets a clear demarcation between the currency (legal tender) and other crypto assets for Indians.

Crypto Assets

Crypto Assets

The Rs.4000 each into 3 funds grew at the rate of 12%

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