India At 2047: Cryptocurrencies, Non-Fungible Tokens (NFTs) and similar entities have been added under Virtual Digital Assets (VDA) in the country and with effect from April 1, 2022 this year. Facing the new stringent tax regime. This may seem like a tough decision as all kinds of taxes are levied. But actually cautions against their investment in cryptocurrencies and also tells them not to invest their entire hard earned money in a volatile sector like cryptocurrencies without thinking about high returns. The decision to tax cryptocurrencies is also being seen as an attempt to legalize crypto assets in India without imposing restrictions on them. Which allows investors and traders to continue investing in crypto without any worries.
First let us understand the tax situation on crypto in India as compared to other countries.
How much tax is levied on profit from crypto in India?
In the budget of 2022-23, Finance Minister Nirmala Sitharaman announced the imposition of tax on Virtual Digital Assets (VDA). A 30 percent tax has been imposed on gains from other virtual digital assets, including cryptocurrencies. There is no such explanation in this tax rule that virtual digital assets tax will not be levied within this limit. This means that even if the total income of a taxpayer is less than the tax exemption limit of up to Rs 2.5 lakh, then they will also have to pay tax on the gains from cryptocurrencies. Not only this, a TDS of 1 percent has also been imposed on all virtual digital asset transactions, which will be levied on the purchase and sale of crypto exchanges.
How is India’s tax system as compared to other countries
Capital gains tax is levied on cryptocurrencies in the US as it is applicable here on gains from shares. Capital gains charged on cryptocurrencies range from zero to 37 percent in the US. For example, suppose you invested $100 and sold it for $120, your capital gain would be $20. The same capital gains structure is applicable in the United Kingdom as in the US. Along with this, a tax-free allowance of 12,300 pounds is also available here.
However, there are also many countries that see the tax for cryptocurrencies as a tax haven. Cryptocurrencies in Germany are not considered to be currency, commodities or stocks, but as private money. If you have held cryptocurrencies for more than a year, you do not need to declare it in your tax return and also do not have to pay any tax if you sell on profits. Profits of up to 600 Euros are tax-free if you sell crypto within a year. However, businessmen have to pay corporate income tax on profits from crypto. Similarly, there is no income, capital gains, withholding or any tax on cryptocurrencies in Bermuda.
Crypto Tax in India: Control or Caution?
Compared to some countries, India’s tax system seems a bit lax, while compared to some other countries, India’s crypto tax system looks very rigid. When the tax on crypto was announced in India, the move was welcomed by crypto traders and investors, as it was seen by the government as a legal recognition of digital assets by the Center.
It is said that cryptocurrencies are being taxed too much in India. Which is actually true. The tax on crypto in India is much higher than the tax on any assets. In comparison, long-term capital gains tax at the rate of 15 per cent is levied on long-term capital gains tax on shares in India.
Cryptocurrency attracts a TDS of 1% in addition to the crypto tax of 30 percent which has come into effect from July 1, 2022. In June, the Central Board of Direct Taxes (CBDT) issued an FAQ to clarify all guidelines on crypto TDS.
Some people considered it a positive step. Satwik Vishwanath, CEO and co-founder of crypto exchange Unocoin, said that “As a part of the association, we had apprised the ministry of the practical problems of TDS. Respecting the same, the ministry has issued guidelines regarding information on TDS and recovery of TDS. That said, I would consider this a small victory for the crypto community and we expect similar encouragement from other departments as well. Some have tried to capitalize and use TDS as a business opportunity to attract more customers to the crypto platform.
he said ” We welcome the clarification issued by the Finance Ministry on TDS on Virtual Digital Assets. The intention behind this is positive and it helps to make crypto investments more transparent and trace investments. And with the help of regulators will help in developing this industry. Prashant Kumar said that the government has ensured that common investors do not face trouble while investing and have put the entire burden on the exchange. This has made the role of exchanges and brokers clear. 1 per cent TDS is applicable only at the time of sale which can be claimed in the next year’s filing.
India’s crypto tax is very high which comes as a slang term for commoners who do not have much understanding of the volatility of the crypto market. The people of the country still lack complete information on crypto. With simple KYC procedures and availability of exchange and wallet on mobile app, investing in crypto with bank account and government ID proof becomes easy. A stricter crypto tax is believed to encourage people to be cautious about their investments, read the fine print and understand the expected returns before investing their money.
Disclaimer: Crypto products and NFTs are unregulated and can be highly risky. There can be no regulatory recourse for any damages caused by such transactions. Cryptocurrency is not legally recognized. This is subject to market risks. Readers are advised to seek expert advice and read the offer documents carefully along with relevant important literature on the subject before making any investment.