Cryptocurrency and its Taxability in India

Cryptocurrency is a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend. Cryptocurrency are decentralized networks based on block chain technology. Cryptocurrency is not issued by any Central Authority, so there is no interference of the Government in their trading. A Cryptocurrency is a form of digital asset based on a network.

Crypto” refers to the various encryption algorithms and cryptographic techniques that safeguard these entries, such as elliptical curve encryption, public-private key pairs, and hashing functions. Cryptocurrencies can be purchased from Crypto exchange.

Types of Cryptocurrencies

 

There are many different types of Cryptocurrency, but these nine are among some of the more well-known currencies

  • Bitcoin (BTC)
  • Ethereum (ETH)
  • Tether (USDT)
  • Binance Coin (BNB)
  • Ripple (XRP)
  • Tera (LUNA)
  • Dogecoin (DOGE)
  • Shiba-inu (SHIB)
  • Litecoin (LTC)
  • Ethereum Classic (ETC)

How to Buy Cryptocurrency

 

Any investor can purchase Cryptocurrency from popular crypto exchanges such as Coinbase, apps such as Cash App, or through brokers.

Is Cryptocurrency Legal in India?

 

Taxing Cryptocurrencies does not give them legal status in the country, finance minister Nirmala Sitharaman clarified in the Parliament. It’s the country’s sovereign right to tax Cryptocurrency transactions.

Advantages of Cryptocurrencies

 

  • Cheaper and faster money transfers with decentralized systems.
  • No involvement of Third Party such as Banks.
  • Investment in Cryptocurrency generates huge profits.

Disadvantages of Cryptocurrencies

 

  • Cryptocurrency includes high price volatility that can lead to major loss to the investor
  • Leaves a digital trail which allows authority to track financial transactions.
  • Because of digital nature transactions can be hacked.

Tax Implications on Virtual Digital Asset

 

Following section 115BBH shall be inserted by the Finance Act, 2022, w.e.f. 1-4-2023:

Tax on income from virtual digital assets:

(1) Where the total income of an assessee includes any income from the transfer of any virtual digital asset, notwithstanding anything contained in any other provision of this Act, the income tax payable shall be the aggregate of—

(a)  The amount of income tax calculated on the income from transfer of such virtual digital asset at the rate of thirty per cent; and

(b)  The amount of income tax with which the assessee would have been chargeable, had the total income of the assessee been reduced by the income referred to in clause (a).

(2) Notwithstanding anything contained in any other provision of this Act,—

(a) No deduction in respect of any expenditure (other than cost of acquisition, if any) or allowance or set off of any loss shall be allowed to the assessee under any provision of this Act in computing the income referred to in clause (a) of sub-section (1); and

(b) No set off of loss from transfer of the virtual digital asset computed under clause (a) of sub-section (1) shall be allowed against income computed under any provision of this Act to the assessee and such loss shall not be allowed to be carried forward to succeeding assessment years.

(3) For the purposes of this section, the word “transfer” as defined in clause (47) of section 2, shall apply to any virtual digital asset, whether capital asset or not.

Key points about Virtual Digital Asset from Budget speech given by Finance Minister 

 

There has been a phenomenal increase in transactions in virtual digital assets. The magnitude and frequency of these transactions have made it imperative to provide for a specific tax regime. Accordingly, for the taxation of virtual digital assets, the Finance Minister proposes that any income from transfer of any virtual digital asset shall be taxed at the rate of 30 per cent.

  • No deduction in respect of any expenditure or allowance shall be allowed while computing such income except cost of acquisition. Further, loss from transfer of virtual digital assets cannot be set off against any other income.
  • Further, in order to capture the transaction details, the Finance Minister  proposes to provide for TDS on payment made in relation to transfer of virtual digital assets at the rate of 1 percent of such consideration above a monetary threshold.

Points to Remember

 

  • TDS needs to be deducted under section 194S by the person paying for the Transfer of Cryptocurrency if the consideration paid during the FY does not exceed Rs 50,000 (in case of specified person) or Rs 10,000 (in any case other than a specified person). Provisions of Section 203A (Tax Deduction and Collection number) and 206AB (higher TDS rates for non–filers of ITR) will not be applicable to payments made by specified persons.
  • Assesses is not allowed any basic exemption limit in case the only income during the year is from the transfer of digital assets.
  • Meaning of Specified Person: For the purposes of this section “specified person” means a person,—
(a)   being an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business carried on by him or profession exercised by him does not exceed one crore rupees in case of business or fifty lakh rupees in case of profession, during the financial year immediately preceding the financial year in which such virtual digital asset is transferred;
(b)   being an individual or a Hindu undivided family, not having any income under the head “Profits and gains of business or profession”.’.

Key Takeaways

Cryptocurrency is a digital virtual asset which is very popular nowadays. Cryptocurrency has its own advantages and disadvantages. Before investing in a cryptocurrency, be sure you understand how it works, where it can be used, how to exchange it and how it is taxed in India. In some cases, rules made under FEMA by RBI are also involved due to involvement in Foreign Currency in the transaction of sale and purchase of Cryptocurrency. Use a trustworthy wallet. It is going to take some research on your part to choose the right wallet for your needs. Have a backup strategy. Think about what happens if your computer or mobile device (or wherever you store your wallet) is lost or stolen. People should do all the research before investing. And should be aware of all risks that arise from trading in Cryptocurrency.

About the Author: This article is contributed by CA Rajeev Gupta, Partner – SIGMAC & Co, Chartered Accountants, Location- Delhi NCR and Gurgaon.

In case of any query please feel free to contact us at: rajeev@sigmac.co.in

For more information and updates, you can contact CA Rajeev Gupta or visit our website www.sigmac.co.in

Disclaimer: This content has been prepared by the author for general guidance of the reader on the matters of interest only. It should not be treated as advice for investing in Cryptocurrencies. It should not be treated as professional advice. You should not act upon the information contained in this article without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information or provisions of the law contained in this article. Author and/ or SIGMAC & Co., Chartered Accountants, its members, employees and agents accept no liability, and disclaim all responsibility for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this article or for any decision based on it.