Taxation of Crypto currency in India

A crypto currency, sometimes known as crypto, is a virtual currency that is protected by encryption. It is intended to function as a means of trade, with individual ownership records recorded in a computerized database. The fact that crypto currencies are not issued by any government body makes them immune to meddling and manipulation from them. 

Latest Crypto currency Developments in India – The Crypto currency and Regulation of Official Digital Currency Bill 2021 is expected to be tabled during the winter session of Parliament. It is a law that will regulate crypto currency in India. On December 7, 2021, Finance Minister Nirmala Sitharaman stated that the planned Central Bank Digital Currency will not increase crypto currencies in India.

Meaning of Crypto currency

To put it simply, crypto currency is a digitized asset that is distributed among several computers in a shared network. The decentralized structure of this network protects it from government regulatory organizations.

The word “crypto currency” derives from the encryption methods used to safeguard the network.

According to computer specialists, any system classified as crypto currency must satisfy the following requirements:

• There is no centralized authority and everything is managed through dispersed networks.
• The system keeps track of bit coin units and who owns them.
• The system determines whether new units can be generated and, if so, the origin and ownership terms.
• Ownership of bit coin units can only be proven cryptographically.
• The technology supports transactions in which the ownership of cryptographic units is changed.

Crypto currency Types

Bit coin was the first sort of crypto money, and it is still the most widely used, lucrative, and popular today. Other crypto currencies, in addition to Bit coin, have been developed with differing degrees of functionality and requirements. Some are bit coin iterations, while others are whole new creations.

Bit coin was created in 2009 by an individual or group known as “Satoshi Nakamoto.” There were around 18.6 millionbit coinss in circulation as of March 2021, with a total market valuation of around $927 billion. Altcoins are alternative crypto currencies that arose as a result of Bitcoin’s popularity. The following are some well-known altcoins:

• Litecoin
• Peercoin
• Namecoin
• Ethereum
• Cardana

Today, the total value of all crypto currencies in existence is over $1.5 trillion, with Bit coin accounting for more than 60% of that amount. 3.

Merits and De-Merits of Crypto currency

The following are the Merits of crypto-currency:

• Funds transfer between two parties will be simple, since there will be no need for a third party such as credit/debit cards or banks.
• It is a less expensive option when compared to other online purchases.
• Payments are secure and provide an unparalleled level of privacy.
• Modern crypto currency systems include a user “wallet” or account address that is only accessible with a public key and a pirate key. The private key is only known to the wallet’s owner.
• The transfer of funds is handled with low processing expenses.

The following are the De- Merits of Crypto-currency:

• Because bit coin transactions are nearly invisible, they may easily become the target of unlawful activities such as money laundering, tax evasion, and potentially even terror funding.
• Payments are not non-refundable.
• Crypto currencies are not widely acknowledged and have minimal value elsewhere.
• There is worry that crypto currencies such as Bit coin are not based on tangible items. According to certain study, the cost of generating a Bit coin, which needs a growing quantity of energy, is closely tied to its market price.

Taxation of Crypto currency in India

Crypto currency Tax in India (FY 2022-2023): In the Union Budget 2022, cryptos were recommended to be classified as virtual digital assets (VDA). Even though crypto currency has been designated as an asset, its tax treatment differs from that of conventional assets. Individuals must pay a flat 30% tax on revenue derived through the transfer of crypto currencies and other virtual digital assets, including NFTs, under the new crypto tax legislation.

Crypto Tax Rule: No set-off of losses Allowed 

The intra-head adjustment of losses, i.e. the set-off of a loss from one VDA with revenue from another VDA, is prohibited. Using an example, Experts said that if you have a loss from the transfer of Bit coin and a profit from the transfer of NFTs, you cannot deduct the Bit coin loss from the gains from the transfer of NFTs. Profits from an NFT transfer will be taxed at a flat rate of 30%.

Furthermore, losses from crypto currency transfers cannot be offset against revenue from any other source. This implies that gains from the sale of equities, mutual funds, assets such as real estate, and so on will not be permitted to offset losses from crypto.

The taxpayer is not permitted to carry forward bit coin losses under the crypto tax rules.

“A loss from the transfer of crypto currency in one fiscal year cannot be carried over to the next year to offset future profits,” 

Date of Crypto Tax Filing: When Will You Have to Pay 30% Crypto Tax?

From Assessment Year 2023-24, the taxpayer will be required to pay a 30% tax on crypto currencies and other VDAs. That means that all of your income from the transfer of VDAs in FY 2022-23 will be taxed at a 30% rate.

Experts advised crypto investors to determine their advance tax due after factoring in the tax on revenue from crypto and NFT transfers, and then pay the advance tax installments appropriately.

Tax on the Exchange of Crypto currency in Business Transactions

Virtual digital assets (VDA) are not currencies, according to the government.

“However, the word ‘transfer’ is not defined in regard to virtual digital assets under the Income Tax Act, 1962 as it is specified for capital assets.” Experts believe that the legislation should define what the term “transfer” implies and if it applies to transactions in which products or services are acquired using crypto currency.

“If the law confirms that such transactions are considered a ‘transfer,’ then the TDS clause will apply here,” as per Experts, in this scenario, a person transferring crypto currency must deduct TDS since a transfer has occurred. Such an occurrence will be taxed in the hands of the person transferring crypto currency.

Furthermore, the company will be obliged to disclose receipts based on the fair market value (FMV) of crypto received as payment for products or services. If the business sells or transfers these cryptos in any way, an event of crypto transfer occurs, and tax must be paid on such transfer.

Taxation of Crypto currency Received as a Gift

The definition of defined moveable assets has also been enlarged by the government to include virtual digital assets. Thus, gifts in the form of crypto assets would be taxed if the fair market value exceeded the Rs 50,000 threshold limit.

According to experts, the plain reading of the crypto tax regulations implies that gifts received from family or on particular occasions are tax-free.

Takeaway

The crypto currency industry is unavoidable, and the opportunities are limitless. Even the Government of India has recognized the potential of crypto currencies as a payment method, proposing legislation to issue and regulate crypto currency in the country. In the future, Crypto currency may become the key driver of the country’s economy.

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