How will the new cryptocurrency tax be calculated? A deep dive

Many see the government announcement as recognition of the crypto industry as an emerging asset class

After a long wait and mixed signals over the past two years, there has been some clarity on the taxation of cryptocurrency income. Presenting the Union Budget on February 1, Finance Minister Nirmala Sitharaman announced that income from the transfer of digital assets will incur tax at the rate of 30%. She clarified that no deductions or exemptions, except for the cost of acquisition, will be allowed. She also said that crypto gifts would be taxed at the same rate on the recipient’s side. This has brought great clarity to those trading in the emerging industry. So far, they don’t know how their income from crypto trading would be taxed.

What are digital assets?

Although the government has not specifically referred to crypto coins, it has classified them and related sectors powered by blockchain technology – such as NFTs – as digital assets. And that is why this new tax regime is simply called the “crypto tax”.

What does it mean?

Many see the finance minister’s announcement as recognition of the crypto industry as an emerging asset class. The Reserve Bank of India (RBI) has already made clear its aversion to private virtual currencies such as Bitcoin, Ethereum and others. He said he was working on his own central bank digital currency and would launch it after due diligence. The Minister of Finance, in her budget speech, said that the RBI digital currency will be launched this year. However, some seem worried about the high tax rate. They say the move is intended to discourage investors and reduce the appeal of cryptocurrencies.

How will the tax be calculated?

The new tax regime will come into effect on April 1 after the union budget is passed in parliament. The Minister of Finance has stated that there will also be 1% TDS on cryptocurrency transactions. Any loss incurred as a result of the transfer of virtual digital assets cannot be compensated by other sources of income.

If you invested 1,000 rupees in a cryptocurrency and then sold that coin for 1,500 rupees, you do not have to pay 30% tax on the total amount. You will have to pay a profit or income tax of Rs 500.

However, this does not mean that cryptocurrency has become legal tender in India. It only means that the government recognizes cryptocurrency as an asset class and will monitor crypto transactions from now on.

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