Capital gains from crypto assets would be taxed at a rate of 30% beginning on April 1, 2022, according to the Budget 2022. However, the current fiscal year, i.e., FY 2021-22, is still a gray area when it comes to how much tax is due on these profits. In general agreement, these profits in this fiscal year may be subject to capital gains tax under the income tax regulations that apply to capital gains. Alternatively, others argue that the 30 percent tax envisaged in Budget 2022 on these earnings should be paid now to prevent future litigation. Some experts have come together to agree on the lack of clarity here. Long-term crypto profits may be taxed at a lower rate of 10% if they are booked before March 31, 2021, rather than in FY 2022-23, assuming one follows the first perspective (putting them on par with capital gains on securities).

According to industry estimates, more than 20 million crypto investors in India have total crypto holdings of roughly INR 40,000 crore.

The Implications Of The New Rules & The Implications For Investors

According to one expert, capital gains realized on the sale of crypto assets held for at least 36 months may be taxed at a rate of 20% with the current fiscal year’s indexation applied. Taxes on these items will be 30 percent starting from 1.4.2022, with no advantages like indexation or deductions apart from the cost of purchase.

But if the profits are short-term (i.e., the asset was kept for less than 36 months), the tax due on them (if considered as capital gains) would be based on your income tax bracket. This fiscal year, you’d pay the same amount of tax on capital gains as you would have in FY 2022-23, assuming your marginal income falls under the 30% tax band.

Specifically, The Administration Has Suggested The Following:

1% TDS on Crypto Assets

One percent TDS was established to keep track of capital invested in crypto-assets. As a result, you must deduct 1 percent of the transaction value as TDS each year if you buy a crypto asset (up to a specified level).

Traders, investors, and anybody who transfers crypto assets in a particular financial year are all subject to the flat income tax rate, which does not differentiate between short-term and long-term profits. Profits derived from the transfer of virtual assets will be subject to a 30% tax rate. There will be no difference in tax rates based on the type of the income, whether it is an investment or company income, or how long it has been held.

To Sum It Up
Crypto assets are taxed in a variety of ways throughout the globe, with the United States classifying it as “property” while the United Kingdom taxes it as “capital gains.” The government of India has made a significant step toward providing openness in the recognition of crypto assets, despite the fact that particular concerns remain unanswered. In order to give investors and businesses more certainty, the sector should be regulated via a crypto law as the next step in adopting it.

FAQs.

How Soon Will The New Tax Take Effect?
On April 1, 2022, a new tax on virtual digital assets, such as cryptocurrencies will go into effect. The newly proposed Section 115 BBH has additional terms, such as one stating that losses cannot be offset against other sources of income.

Some clarification is needed on deductions for the purchase of digital assets and for writing off losses from digital asset trading in a particular financial year. Taxes will also be deducted at the source for any transfers of such assets (TDS). Even if you give someone a present, you’ll have to pay a 30% tax.

After the budget is cleared in Parliament, we should anticipate a specific set of instructions to be issued.

Is There A Distinction Between “Transfer” And “Selling” Virtual Assets?
While traditional financial instruments like stocks, mutual funds, and other regulated investments may be purchased and sold on exchanges, this is not the case with cryptocurrencies. The wallets of two persons are often used to swap cryptocurrency. Saraf & Partners Partner Lokesh Shah noted that “transfer is a broad word and encompasses exchange as well. We trade our Bitcoins and Ethereum for one another’s. For tax reasons, this falls under the category of “transfer.” Since all transactions are included in the word “transfer,” it follows that the government does.

Average cash or money is used in the selling of crypto coins. Taxes would be levied on both sorts of transactions under the Budget recommendations.

Is It Now Lawful In India To Engage In Cryptography?
A post-budget news conference by the Finance Minister said that crypto regulation is now being discussed and that once the regulatory document is finalized, it would be apparent what is legal and what is not.

What Are The Tax Implications Of Digital Assets?
A 30% tax rate applies to all digital asset earnings, regardless of your income tax bracket or the length of time you have held the asset.

On a hypothetical example, if a person invested INR 2,00,000 into crypto at the beginning of FY2022, and the crypto were sold for INR 3,00,000 at the conclusion of FY2022, they would pay a flat 30% tax rate on the INR 1,00,000.

It’s important to know that profits from cryptocurrency transactions are only taxed when they are transferred; profits from owning the asset aren’t subject to taxation on unrealized gains.

Is There A Tax On Virtual Currency?
When you make a profit from the sale of virtual digital assets and deposit the proceeds into a bank account, you will be subject to a 30 percent tax. TDS of 1% will be applied to all payments linked to digital asset transactions.

It’s possible to avoid paying cryptocurrency taxes?
The Indian Government’s tax policy on digital assets is comprehensive and evading taxes will be banned.

Is There A Tax On My Earlier Profits, And If So, How Much?
If the same profits are released after April 1, 2022, they will be taxed as well. Taxes will continue to be levied on your earnings if you sell your investments before March 31, 2022. After April 1, 2022, you’ll have to pay a tax of 30 percent on any profits you make from selling your assets.

In The Perspective Of Long-Term And Short-Term Financial Assets, How Ever Will Virtual Digital Assets Be Taxed?
Virtual digital assets do not have a long-term vs. short-term classification. Regardless of how long it is held, every transaction will be taxed at a 30% flat rate on the profits made from it.

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