Nirmala Sitharaman, India’s Finance Minister, ensures that the government will implement a Digital Rupee in the fiscal year 2022-23 and levy a tax of 30% on virtual assets during her presentation of the Union Budget 2022. Thus, crypto trade lovers in India now have to face Tax on Crypto Transactions. In this article, let us understand the two new proposals regarding digital assets in India.
What is CryptoCurrency?
Crypto-Currency or Crypto is a digital currency based on blockchain technology that is secured through cryptography. Thus, using crypto you can transact(buy and sell goods and services) like a normal currency.
Crypto has encryption. Therefore, it is practically almost impossible to counterfeit or double-spend a cryptocurrency, making it the most secure form of digital or virtual cash on the market today.
Every type of cryptocurrency is a blockchain-based decentralized network (separate network of computers). In simple words, It doesn’t need a central authority, like a government or bank, to keep it safe or keep it working.
Today, there are several cryptocurrencies in the digital currency market, including Bitcoin, Ethereum, Solana, Cordano, etc. Since the countrywide lockdown, the amount of money invested in and traded in cryptocurrencies has multiplied several times over.
Furthermore, there has not been any specific regulation from the government or RBI(Reserve Bank of India) prior to Union Budget 2022.
Are cryptocurrencies legal in India?
There is currently no legal classification for cryptocurrencies in India.
The Reserve Bank of India attempted to enforce a ban on cryptocurrency exchanges in 2018 by limiting banking services to them.
The Supreme Court, however, upheld the restriction on constitutional grounds and the basic rights associated with virtual trades.
The tax authority has yet to provide any explanation on the tax consequences of gains made from cryptocurrency trades and assets.
There is also speculation that the Indian Government will form a Crypto Bill to regulate Crypto Currencies in India.
Government Imposes Tax on Crypto Transactions
Taxability cannot be avoided even though the Reserve Bank of India (RBI) has not yet authorized the cryptocurrency.
This means Income tax must be paid by investors while ITR Filing earns profit from the selling of cryptocurrencies. Furthermore, Investors requires to pay taxes on transactions of crypto.
As per the latest updates and Union Budget 2022 Highlights, There will be a 30 percent tax imposed on the transfer of digital assets such as cryptocurrency.
Only the expense of acquiring digital assets can be deducted. Furthermore, No other revenue can be used to offset digital asset transaction losses.
The government will also impose 1% TDS if the transactions exceed a certain limit.
Lastly, Gifting digital assets to someone else will be taxed and the recipient will have to pay taxes.
This reform will be in effect on April 1, 2023, and will affect assessments for the years 2023-24 and following assessment years.
Crypto: Currency vs Asset
Financial experts are debating whether Crypto should be classified as a virtual currency or an asset. A lot of people use the terms “cryptocurrency” and “crypto-assets” interchangeably.
There must be some legal support from the government before it can be called a “currency.” However, there is no legal support from the government on Cryptos.
So, In the absence of such legal support, you can categorize it as an asset or an investment.
Moreover, Tax implications would emerge regardless of legal status, therefore designating them as ‘assets’ rather than any governmental explanation would also be preferable.
Important Note: A notification from government officials in the United States declared cryptocurrencies to be “property,” triggering capital gains taxes on any profits made from their sale.
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