After a two-year wait and a slew of confusing signals, there is some clarification on the taxes of cryptocurrency revenue. In her presentation of the Union Budget on February 1, finance minister Nirmala Sitharaman declared that income from digital asset transfers would be taxed at 30%. She said explicitly that neither deductions nor exclusions would be permitted, except the purchase cost. She also stated that cryptocurrency presents would be taxed at the same rate as cash gifts. This provided significant clarification to those dealing in the growing industry. They are still wondering how their cryptocurrency trading profits will be taxed.
What exactly are digital assets?
While the government did not expressly mention cryptocurrencies, it did classify them as digital assets and adjacent industries driven by blockchain technology, such as NFTs. As a result, this new taxing structure is referred to as the “crypto tax.”
How will the tax be determined?
The new taxes regime will take effect on April 1, after ratifying the union budget in Parliament. The finance minister also stated that a 1% TDS would be imposed on cryptocurrency transactions. Any loss sustained due to the transfer of virtual digital assets cannot be adjusted against other revenue sources.
If you buy Rs 1,000 in a cryptocurrency and later sell it for Rs 1,500, you do not have to pay 30% tax on the whole amount. You will be obligated to pay Rs 500 in tax on your profit or revenue.
This, however, does not imply that cryptocurrency has become legal tender in India. It simply means that the government acknowledges cryptocurrency as an asset class, and it will begin monitoring cryptocurrency transactions.