Beginning April 1, all forms of virtual digital assets (VDA) or crypto assets that are sold at a profit will attract a tax of 30 percent. The announcement was made by Finance Minister Nirmala Sitharaman in her Union Budget speech this year.
While this high crypto tax rate has made stock trading (which attracts a maximum tax rate of 15 percent) a more lucrative option, it has also left investors with several questions.
Here are the most frequently asked questions (FAQs) on the proposed crypto tax.
How will cryptocurrency assets be taxed?
There is a direct tax provision on the income (or profit) made from cryptocurrencies. As mentioned earlier, all crypto profits gained over the year will be taxed at 30 percent -- the highest tax bracket. So, if you buy a crypto asset for Rs 200 and sell it for Rs 400, you will have to pay a 30 percent tax on the Rs 200 profit you made i.e. Rs 60.
Will crypto investments also be taxed?
No. The government has only levied a tax on the income or profit made from cryptocurrencies. Going back to the earlier example, if you buy a crypto asset for Rs 200 and sell it for Rs 400, you will only pay the 30 percent tax on the profit (Rs 200) that you made and not the entire investment.
Will crypto transactions be taxed?
Yes. All crypto transactions will be subject to a 1 percent tax deducted at source (TDS). However, the cumulative TDS can be set off against the total income tax owed at the end of the year.
Will the government cut TDS even if one is selling crypto at a loss?
Yes, the TDS is deducted upon the entire crypto transaction value even if one makes a loss. So, if you sell a crypto asset for Rs 500 at a loss of Rs 10, you will still have to pay the 1 percent TDS on the entire transaction -- Rs 5.
Can I avoid tax by trading on international exchanges?
Probably, but that could be illegal and seen as tax evasion by authorities. It is your duty to inform the government of the income/profit you made from crypto trading. If you don't do it and the law enforcement agencies find out, they are likely to come after you.
Also Read: How do crypto cross-border payments work?
Can I offset crypto losses against crypto gains?
No. You will have to pay the 30 percent tax on the crypto transactions in which you made a profit and any previous losses won't be factored in. For instance, if you make a profit of Rs 100 in a Bitcoin transaction but lose Rs 150 in a Dogecoin transaction, you will still have to pay the 30 percent tax on that Rs 100 profit. You will not be allowed to avoid tax payment on the first transaction under the pretext that you made a loss in your second transaction.
Do we have a crypto law?
No. While the Central government has imposed a 30 percent tax on the income (or profit) made from cryptocurrencies, India is yet to get a crypto legislation. So, the tax only gives legitimacy to crypto transactions and allows the government to oversee all trading but digital assets are still unregulated in the country.
Does crypto tax make digital coins a currency in India?
No. Finance Minister Nirmala Sitharaman, in her Budget speech, clarified that all cryptocurrencies will be classified as digital assets and not as legal tender. She added that only the digital currency issued by the Reserve Bank of India will be recognised as the currency. So, you can invest in cryptocurrencies, make profit from their transactions but you can't buy commodities in India using cryptocurrencies.