Cryptocurrency earnings face a 30 percent tax in India. Cryptocurrencies, non-fungible tokens (NFTs) and similar entities are classified as virtual digital assets (VDAs) in the country and face a strict tax structure as part of the new regime that came into force on April 1 this year. While this may seem like a harsh move at first, as all taxes do, it is actually presented as a warning step that can help users be wary of their cryptocurrency investments and not put all their money into a highly traded sector. volatile without solid understanding. , mainly due to promises of mega returns in a short time. Cryptocurrency taxation is also seen as a way to legitimize crypto assets in India, without banning them outright, allowing investors and traders to continue dealing with cryptocurrencies without much concern.
First, let us understand the crypto tax scenario in India and how it compares to other countries.
How much tax is levied on crypto earnings in India?
In the Union Budget 2022-23, Finance Minister Nirmala Sitharaman proposed a fiscal policy on VDAs. All proceeds from the sale of VDA will face a 30 percent tax. Please note that there are no thresholds below which the VDA tax will be waived. This means that even if a taxpayer’s total income is below the limit of Rs 2.5 lakhs, the earnings will be subject to tax.
On top of that, a 1 percent TDS will be charged on all VDA transactions, which will be deducted by the crypto exchange that will credit or make the payment to the seller.
ALSO READ: All About Crypto TDS In India: How Cryptocurrency Exchanges React To CBDT FAQ
How does India’s taxation compare to other countries?
In the US, cryptocurrencies face capital gains taxes, the same taxes as stocks. The federal tax rate on cryptocurrency capital gains ranges from zero to 37 percent. For example, if you invested $100 and cashed out $120, your capital gain would be $20.
The UK also follows a similar capital gains tax structure to the US, with a £12,300 tax-free allowance.
There are certain countries that are considered crypto tax havens. In Germany, cryptocurrency is not considered currency, commodities, or even stocks. It is considered private money. If you own cryptocurrency for more than a year, you do not need to declare it on your tax return and the sale will be tax-free, regardless of the gains. If you sell your crypto asset within 12 months, the gains of up to 600 EUR will be tax-free. Companies, on the other hand, will have to pay corporate income taxes on crypto profits.
Similarly, in Bermuda, cryptocurrencies do not invite income, capital gains, withholding or any other taxes.
Crypto tax in India: control or precaution?
Compared to some countries, India’s tax structure may seem a bit more relaxed, while compared to other nations, India’s crypto tax may seem harsh. However, the announcement of the cryptocurrency tax in India was generally welcomed by cryptocurrency traders and investors in the country, as the Center saw it as a kind of legitimization of digital assets.
Add to that the fact that the government is looking to introduce a central bank digital currency (CBDC) soon, and it’s another sign that India is pro-crypto (for the time being). For those who don’t know, CBDC refers to the virtual form of a fiat currency, like the rupee in the case of India. Legal tender will be issued by the RBI in digital format. Since it will be considered a digital token of the nation’s official currency, it will be regulated by the central bank. The CBDC is expected to support the Indian banking system or complement existing frameworks.
Having said that, there are strong arguments that cryptocurrencies face a high tax structure in India. And that is true. In fact, the crypto tax rate in India remains higher than any other asset class. By comparison, securities in India are taxed at a long-term capital gains tax rate of 10 percent and a short-term capital gains tax rate of 15 percent.
In addition to the 30 percent crypto tax, as mentioned, there will be an additional 1 percent TDS, which came into effect on July 1. To offer more clarity, the Central Board of Direct Taxes (CBDT) issued an FAQ in June, detailing all the guidelines on the crypto TDS.
Some considered this a positive move. “We, as part of the association, had explained the practical problems in the way [the ministry was] thinking about TDS and had proposed a viable solution. The same has been honored now and [the ministry has] we publish our intended guidelines as the standard operating procedure for collecting information and money in TDS,” said Sathvik Vishwanath, CEO and co-founder of cryptocurrency exchange Unocoin. “I would consider this a small win for the crypto community and we look forward to that encouragement from other departments as well.”
Some others tried to cash in and use the TDS as a business opportunity to attract more customers to their crypto platforms.
Prashant Kumar, the founder of crypto trading platform weTrade, told ABP Live: “We have decided that we will take 100 percent of the TDS charge from our clients by giving them an instant refund equal to the TDS deduction, which will make it easier for them to further compliance. with regulations. weTrade makes cryptocurrency investing easy and rewarding, and by making it a TDS-free platform, we hope our customers will love us even more.”
He added: “We at weTrade wholeheartedly welcome the move by the Ministry of Finance around the clarification that was issued yesterday regarding TDS at VDA. The intent behind it is positive and helps bring more transparency around cryptocurrency investments by making them easily traceable, which will help grow the industry in the long run with the support of regulators.”
Kumar said that what is “especially commendable” is that the government has ensured that ordinary investors are not hassled while investing, by putting the onus of adherence on exchanges and clearly articulating the role of exchanges and brokers. “The 1 percent TDS only applies during the sale, which can, however, be claimed in next year’s filings.”
India’s crypto tax, while high, comes as a strict warning to ordinary investors who may not have a great understanding of the extreme volatility of the crypto market in general. There is still a lack of deep understanding of cryptocurrencies among the general masses in the country. And, with simple KYC procedures and the availability of mobile app exchanges and wallets, getting into crypto investments is a snap for anyone with a working bank account and proof of government identification. Therefore, a harsh crypto tax is believed to make people cautious with their investments, read the fine print and understand the expected returns before investing their money.
Disclaimer: Crypto products and NFTs are unregulated and can be very risky. There may be no regulatory recourse for any losses from such transactions. Cryptocurrency is not legal tender and is subject to market risks. Readers are advised to seek expert advice and carefully read the offering documents along with relevant literature before making any investment. Cryptocurrency market predictions are speculative and any investment made will be at the sole risk and expense of the readers.