After a long and tiring wait of a firm stand from the Center regarding cryptocurrency, the budget 2022-23 shed some light and cleared the uncertainty of concerned digital asset investors. Finance minister Nirmala Sitharaman announced on 1st February that any income from a digital asset transfer will be taxed at the rate of 30 percent, hinting at the acceptance of private currency from the Center. The minister made it clear that no sort of deduction or exemption, excluding the cost of acquisition, will be allowed. Adding to it further, she also said that even crypto gifts will be subjected to taxation at the same rate from the receiver of the gift. This has been a great stress reliever for investors from the constant reeling of the center’s support on crypto with it getting banned in 2019 and the decision getting undone by the Supreme Court in 2020. However, how income from crypto trading would be taxed is still unsure.
Government called this new taxation regime, the “cryptocurrency tax”,
and under it has classified all the digital assets- crypto coins and all related sectors powered by blockchain technology, for example, NFTs. The public sees this announcement as the stamp of approval from the Government of India. RBI has already made many statements against the private digital assets like Bitcoin, Ethereum, and others. Due to the center’s scornful eye, it has also decided to release its own centralized digital currency. The finance minister said that the RBI digital currency would be launched this year. However, people are worried about the steep rate of tax and regard this decision as a move that is aiming at discouraging investors and reducing the overall appeal of decentralized cryptocurrencies.
Now the important question that arises is:
How will this crypto tax be calculated? The new taxation regime will be effective from April 1. According to Sitharaman, there will be a 1 percent TDS on cryptocurrency transactions. Any loss incurred as a result of the transfer of virtual digital assets cannot be offset against other sources of income.
Let us understand the process by
taking a hypothetical situation. Let us suppose you have invested Rs. 1000 in a cryptocurrency. You now sold that cryptocurrency for, say, Rs. 1500. Now on this, you actually don’t have to pay a tax of 30 percent on the total amount at which you sold your asset, in this case, the cryptocurrency. You have to pay the 30 percent tax only on the profit or, in other words, the income that you made, or, gained. In this case, your income gained is a sum total of Rs. 500. Therefore, the tax that you have to pay in this case will be equal to Rs. 150. Does this mean that cryptocurrency has finally been legalized? Most likely, no. Approval of the currency only means that the government now recognizes that cryptocurrency is a valid asset that people use. As a result, government will be monitoring the asset and its transactions from now on. However, it does not mean that it has been legalized.