Crypto Tax India vs US: There is still uncertainty about crypto around the world. However, some countries including India have made a provision for tax on it. In the Union Budget 2022, Finance Minister Nirmala Sitharaman announced tax provisions on cryptocurrencies in India for the first time. In the US, the Internal Revenue Service (IRS) first set tax-related provisions regarding crypto in 2014. Tax rules for cryptocurrencies like Bitcoin differ greatly in both countries and are fundamentally different in nature, such as there are different provisions in both countries regarding what type of asset crypto is considered to be.
Classification of Crypto Assets
In this year’s budget, the Indian government considered crypto assets as virtual digital assets. Although they are considered assets, virtual digital assets are different from other types of assets in terms of tax. According to the Union Budget 2022, a flat 30 percent tax will have to be paid on profits from virtual digital assets. On the other hand cryptocurrencies are considered capital assets in the US. In such a situation, when there is profit on the sale of cryptocurrencies, then tax is to be paid on the basis of long term crypto assets or short term crypto assets. As per US law, asset holding of less than one year is short term.
loss adjustment provision
Virtual digital assets in India do not get the benefit of deduction except for the acquisition cost and cannot be set off or carry forward if there is a loss. Apart from this, the loss on sale of other types of capital assets (other than virtual digital assets) can be set off with capital assets gain subject to certain conditions and if not able to do so, it can be done for the next eight years. Can be adjusted with capital gains. On the other hand, under the US Income Tax Act, if there is a loss on investment in crypto assets, then it can be set off from other sources of income. If you are not able to adjust this loss, then you will be able to carry forward it to set off from the profit from further investment.
tax on gifts
In Budget 2022, the central government has made a provision of 1 percent TDS on transfer of virtual digital assets of sale value exceeding a limit. On the other hand, if crypto is found in a gift, then tax will also have to be paid on it, if its fair market value is above a threshold limit, but gifts received by relatives and on special occasions will be exempted. On the other hand, in the US, there is no withholding tax on payments made in crypto assets. Apart from this, no tax will have to be paid on receiving the gift, but if you sell it in future, then you will have to pay capital gains tax. However, for this it is necessary that the person who has given in crypto gift, should inform the government, if its value is above a limit.
provisions in business transactions
If payment has been received from crypto in exchange for any goods or services, then the taxpayer will have to pay capital gains tax on it i.e. on the difference between the initial purchase price and the current price. At the same time, the one who has received the payment, considering it as income, will have to pay tax according to the regular tax rates. On the other hand, in the Budget 2022 in India, the government has not clarified the situation regarding how tax liability will be created when it is used as a currency. There is a need for clarity on ‘transfer’ right now.
Tax Provisions on Other Uses of Crypto
In India, the Union Budget 2022 has not fixed any provision for income from staking, mining, lending, borrowing, airdrops, forks, wallet transfers, P2P transfers, gaming, gifting, donations, etc. Whereas in the US, if you get crypto for mining, promotion or payment of any goods or services, then it is considered as regular taxable income. On this, tax has to be paid according to your regular income tax rate on the market price of the day on which it is received.