Crypto tax: Understand how virtual digital assets will be taxed from April 1

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The Financial Year 2022-23 (FY23) which starts from April 1, 2022, is set to come as a setback for crypto traders in India as from now on, their gains in virtual assets will be taxed at 30 percent. Moreover, the losses will not be allowed to ve set off against income under “any other provision” of the IT Act.

Crypto tax from April 1

New Delhi: In a setback for Indian traders, Union Finance Minister Nirmala Sitharaman in her Budget 2022 speech on February 1 had announced a 30 percent on the transfer of virtual digital assets. The new rules concerning tax are set to come into effect from April 1, 2022, as the new financial year kicks in. Moreover, a Tax Deducted at Source (TDS) at the rate of 1 percent of the consideration paid in relation to the transfer of virtual digital assets will be levied from Friday.

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Here’s how virtual assets will be taxed from April 1:

1) 30% tax on virtual digital assets

Any gain on the sale of crypto assets will be taxed at a 30 percent tax rate. Investors wouldn’t be able to set off losses in one currency against gains in another, as per new rules. Let’s understand this with an example. If an individual bought crypto for say Rs 20,000 and sold it for Rs 60,000, their straightforward gain would be Rs 40,000. Now, on the gain of Rs 40,000, the 30 percent income tax would equate to Rs 12,000.

2) TDS on cryptocurrency transactions

FM Sitharaman had also announced a 1 percent TDS for transactions involving the currency. Selling the crypto assets in any scenario i. e. at loss or profit would attract a 1 percent TDs. However, it could be claimed as a refund done on a transaction involving loss.

3) Threshold Limit 

The threshold limit for TDS in a year would be Rs 50,000 for specified persons including individuals/HUFs who are required to get their accounts audited under the I-T Act.

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4) Tax on Gain in Virtual Assets

While gains in virtual assets will be taxed from April 1, the provisions concerning 1 percent TDS will kick in from July 1, 2022.

5) Tax on crypto gifts

If someone has gifted you a virtual asset or cryptocurrency, it would be liable for taxation as a gift. Last week, the Lok Sabha cleared the Finance Bill 2022, thus, clearing the way for taxation rules on virtual digital assets (VDAs) or the “crypto tax”, that was suggested in the Union Budget 2022-23. Section 115BBH under the bill talks about taxes on virtual digital assets, while clause (2)(b) bars setting off a loss from assets against income under “any other provision” of the IT Act. This simply means that a loss incurred from the transfer of virtual digital assets (VDA) won’t be allowed to be set off against the income arising from the transfer of another VDA.

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