In India, from the next financial year, now tax will also be imposed on the income earned from cryptocurrencies. Finance Minister Nirmala Sitharaman in her budget speech on February 1 said that transfer of digital assets such as cryptocurrencies and NFTs (non-fungible tokens) will attract 30 per cent tax. Apart from this, 1 per cent TDS will also be levied on every transaction of such assets. Even such assets received in gifts will attract 30 per cent tax.
A clarification and detailed order is yet to come from the tax department on how the cryptocurrency tax will be implemented. However, in the meantime, Moneycontrol spoke to some chartered accountants to know how this tax will be implemented and how it will affect crypto users. Let us know what he said-
Karan Batra, founder of the tax consultancy firm Chartered Club
The new provision to levy 30% tax on earnings from cryptocurrencies will come into effect from April 1, 2022. Hence it will not have any impact on those who sell their crypto holdings in the same financial year. Crypto users can consider recovery of profits or losses before 31 March 2022. If you are in a profit position and sell your holdings in the same financial year, you will not be taxed at 30 per cent, as it will be applicable after April 1. Although the price of bitcoin has fallen in the recent past, many users may also be at a loss. For them too, it is time to book the losses – these can be carried forward and set off against gains from other assets next year.
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Ashok Shah, Chartered Accountant and Founding Partner of NA Shah Associates LLP
The proposed amendments mean that crypto users can only book their losses before March 31, 2022, if they wish to set-off such losses against other income. Hence, it becomes important here that each user checks the nature of their income and sees whether they need to utilize these losses in the current financial year. On the other hand, if they believe that a particular crypto asset can not only cover losses but also give strong profits in the coming times, then they can retain it. However, from the next financial year, they will have to pay 30 per cent tax on gains from digital assets.
Clarification is yet to come on how the TDS rules will be implemented. For example, in whose favor TDS will be deducted and who will be the counter-party, platform or other crypto participants in the transaction? And if the counter-party does not have a PAN card or has not filed its return, will the TDS rate be higher? And whether the buyer will decide whether the counter-party has filed the return or not.
Ankit Jain, Partner at Ved Jain & Associates
To discourage investors from participating in crypto-trading, the government has imposed a 30% tax on earnings from cryptocurrencies and a maximum rate of cess and surcharge. The introduction of this tax has reduced some of the uncertainty surrounding taxation on crypto. While this can be deducted only on acquisition cost, it still leaves many challenges for the taxpayers. Firstly, the cost of acquisition has not yet been defined, adding to the confusion. There are usually charges like exchange fees, wallet charges, etc. when trading in cryptocurrencies. These charges will not be deductible.
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The government has prohibited crypto-trading losses from being adjusted against any other income or carried forward to the next year. This offer will be a big discouragement for the investors or crypto traders. It can also create unnecessary volatility at the end of the year, where investors will try to book their holdings to reduce their losses.
The Finance Bill proposes to levy 1% TDS on every purchase of cryptocurrencies. It seems that the main purpose of introducing this nominal rate is to aggregate all the data related to cryptocurrency trending. However, implementing this provision is not as straightforward as it seems. Implementing this on crypto exchanges will prove to be a difficult step, where the identities of buyers and sellers are not readily available to each other.
Abhishek Soni, CEO & Co-Founder of Tax2win.in
In addition to tax at the rate of 30%, taxpayers will also have to pay applicable cess and surcharge as per their income tax slab. The government says that except the cost of acquisition, deduction of any other expenditure will not be allowed. Here the Central Board of Direct Taxes (CBDT) will have to clarify whether losses arising from transfer of virtual assets can be set off against gains from others.
The government has equated the earnings from digital virtual assets to the winnings in the lottery. Hence, there is no question of indexation benefit or any other exemption on this. Also, users cannot carry forward losses incurred while transacting in digital virtual assets.
The proposal to levy tax on transfer of digital virtual assets will come into effect from the financial year 2022-23. It is proposed to deduct 1 per cent TDS while transferring digital virtual assets. This would mean that the buyers would have to ask for the seller’s PAN card and other numbers for the transaction. This could increase KYC compliance in the crypto industry and curb anonymous transactions.
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