Key Points

• From April 2022 all the digital assets (crypto/nfts etc) which are sold will be taxed by 30% on their profits after sale.
• A 1% TDS will be held back each time you sell a crypto asset, and will be set-off against the crypto tax at the end of the year.
• Crypto has been referred to as a virtual digital asset in government's announcements.

Table of Contents

• What the Finance Minister Said?
• How will the 30% tax be charged ?
• What are Realised Gains?
• Will you be taxed if you lose money instead of gain?
• What does it mean by cutting 1% TDS on every transaction?
• Significance of this Step
• What Experts say?

What the Finance Minister Said?

Finance Minister Nirmala Sitharaman gave sanction to cryptocurrencies in the country - by labelling them as digital assets and not currency and taxing income gains from their transactions at 30%.

"Blockchain is full of potential not just in the payments arena but also in many others. Our intention is in no way to hurt the ecosystem, or to even say that we don't need it, but to define for ourselves how we need them and in what ways their growth should be facilitated and how we are going to handle it," she said during an interaction with students and faculty at Stanford University in California.

How will the 30% Tax be charged?

Let's suppose you have bought NFT for 6000 rupees and you sold it for 10000 rupees in the financial year that is from 1st Apr 2022 to 31st Mar 2023 then you will be charged a 30% tax on the your GAINS which is on 10000-6000= 4000 rupees which will come out to be 1200 rupees. This means taxation will be on REALISED GAINS.

What are "Realised" Gains?

The 4000 rupees in the above example is a realised gain which comes only and only after selling the digital asset. This means that if you buy Bitcoin for some money and hold it for 1 year or few years you will not be taxed on it , you can be taxed only on the profit that will come after selling all or a portion of it .This certainly doesn't mean that you can sell the digital asset and keep that money in your wallet and not in the bank and you won't be taxed , you WILL BE TAXED if you sell the asset .

Will you be taxed if you lose money instead of gain?

Let's suppose you sold Ether and Dogecoin. In sale of Ether you made a profit of 50,000 INR and while selling dogecoin hit you with a loss of 25,000 INR. If you have to pay your tax only on realised gains that is 50,000-25,000 that is 25,000 INR and 30% of this will be 7,500 INR.

Note: All profits and losses of the same financial year will be taken into account and net gains will be taxed .

What does it mean by cutting 1% TDS on every transaction?

TDS is Tax Deduction at Source. In this context, it means that for every digital assets transaction, 1 % of the total amount will go to the government so that they can keep a record of your each transaction.

For example - if you bought BTC for Rs. 1 lakh and sold it for Rs. 1.5 lakhs; the exchange will charge 1% of Rs. 1.5 lakhs; which is 1500 rupees. The amount will be deducted and deposited to the government.

REMEMBER, it is not an additional tax because you can take it's credit when you will file your INCOME TAX RETURNS .

Yes , you will be charged digital asset tax from this year from the highest tax bracket that is 30%. Earlier, you were paying taxes that was charged according to your tax bracket. 30% tax was charged only to those who were in the higher tax bracket.

Significance of this Step

• Finance Miniter's announcement in the budget largely ended the uncertainty over the future of cryptocurrencies in India.

• You need to understand the actual basics of the tax system and ifs and buts of the crypto market in order to invest as it is a high risk high reward area so only the richest of rich can afford big losses so you need to be careful before investing and doing your own research is the key !

• As the government has started taxation, it has become the government's responsibility to regulate each exchange on crypto.

What Experts say?

"The onerous tax provisions are a challenge for the crypto industry", Sumit Gupta, CEO of India's first crypto unicorn CoinDCX, said. "A flat 30% tax rate will certainly stifle growth and we have already seen many crypto companies leaving India."

WazirX Founder and CEO Nischal Shetty said the new 1 percent TDS deduction on all cryptocurrency trades in India will end up costing the government a lot more in bureaucracy, as it will have to create the mechanisms to return up to $900 million to traders in tax returns next year.

Crebaco CEO Sidharth Sogani said, "It is clear that the new tax has impacted the market negatively." Mr Sogani went on to add that April 1, 2, and 3, were all holidays and since then volumes have continued to decline. "The government must look into this, and because there is no way to stop this (crypto), the government should embrace the technology." he said.

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