In 2023, crypto investors will file taxes on profits from fiscal year 2022-23 for the first time thanks to the new tax system. The Union government introduced a tax framework for crypto assets, or virtual digital assets, last year.
Cryptos have been classified as a separate asset class in India and are now considered Virtual Digital Assets (VDA). Last year, for the first time, the government officially referred to digital assets, including crypto assets, as “Virtual Digital Assets.” This includes all cryptocurrencies like Bitcoin, Ethereum, etc. and other digital assets like non-fungible tokens (NFTs).
The government said income from the transfer of virtual digital assets such as cryptocurrencies and NFTs will be taxed at 30%.
According to the 2022 Budget Session, key points for a crypto investor to consider include:
- Revenue generated from the sale of cryptocurrencies, VDAs and NFTs in fiscal year 2022-23 is subject to a 30% tax rate and applicable levy and levy.
- When reporting income from the transfer of digital assets, no deduction is allowed, except for acquisition cost.
- Losses from digital assets cannot be offset against other income.
- The donation of digital assets entails taxes for the recipient. Losses from a virtual digital currency cannot be offset against income from another digital currency.
- A 1% TDS is charged for crypto transactions valued at Rs 50,000 in a fiscal year. This applies to transactions made on or after July 1, 2022. There is no TDS if the customer uses Indian Rupees to purchase a Virtual Digital Asset (VDA). However, if the same buyer were to sell back the VDA for INR, the 1% TDS would apply.
Who must pay all 5% TDS and why?
Under Section 206AB of the Income-Tax Act 1961, if you have not filed your income tax return for the past two years and the TDS amount is Rs 50,000 or more in each of those two previous years, the tax is payable as TDS for crypto-related transactions is 5%.
Can I check the TDS details on the government portal?
You can view the details of the tax withheld on your Form 26AS (a consolidated annual tax return issued by the Tax Department detailing the tax deducted at source) when it is updated by the Department.
Can an individual claim the Crypto TDS like other TDSs?
Yes! You can claim tax deducted as TDS on crypto trades when filing ITR for the relevant fiscal year.
Will the tax be deducted even if I make a loss?
Yes! Regardless of whether you post a profit or loss, tax may be deducted as TDS for each cryptocurrency purchased or sold. Therefore, if you suffer a loss when investing in virtual digital assets, the loss cannot be offset against other income to reduce your taxable income and therefore your income tax liability. That means if you sold one bitcoin at a profit and another at a loss, you still have to pay a 30% tax to the state on the profit you made on a token.
Recommendations for Investors
- Include all centralized exchange wallets, international wallets, and your DEFI (decentralized finance wallets) on the income tax form.
- Make sure all TDS recorded by the exchanges for your trades are reflected correctly on your Form 26 as they are on file on your PAN card.
- The new income tax form includes a section related to crypto gains. Make sure your crypto profits are included in this section at the time of completing your tax return.
- There are specific challenges related to crypto taxation such as airdrops, liquidity pools, derivatives and mining. If there are many transactions related to these aspects, you can contact a crypto tax expert.
How much tax do you pay on crypto in India?
In short, there are now plans to levy two types of taxes on crypto assets. It is a 30% tax on annual crypto transaction profits and a 1% TDS on each crypto transaction. The TDS cut can be submitted for return during the ITR filing.
Due date for filing the ITR?
Capital gain: If you report the income as capital gains, the due date for filing your income tax return (ITR) is July 31.
Business Income: If an individual reports income as business income, they must calculate the turnover to determine whether their accounts need to be audited. If your turnover is above the specified limit, you must have your accounts checked. In this case, the due date for submitting your ITR is October 31st. Also, you must submit the audit report to the Income Tax Department by September 30. If your sales are below the specified threshold in the meantime, the due date to submit your ITR is July 31st.
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