Cryptocurrency and Tax: Know the rule

What is Cryptocurrency

We’ve simplified the definition of cryptocurrency into layman’s terms to make it easier to grasp for everyone: A cryptocurrency is built on blockchain technology as a means of exchange. It is?digital money that can be used to buy goods and services, similar to our other commonly used currencies. Its transaction records are maintained and verified by a decentralized system.

In the digital currency realm, more than 1,500 virtual currencies are traded, including Bitcoin, Litecoin, Ethereum, Dogecoin, Ripple, Matic, and others. However, cryptocurrencies have been controversial since their inception due to their decentralized structure, which means they operate without the involvement of any intermediary such as banks, financial institutions, or central authority.

Despite any legal tender status for cryptocurrencies from the Indian government and any specific regulation from the Reserve Bank of India, the investment and trading volume of cryptocurrencies has grown.

Legality of Cryptocurrency

The Reserve Bank of India (RBI) attempted to impose a ban by restricting banking services to crypto exchanges. However, the restriction was overturned by the Supreme Court on constitutional grounds and the fundamental rights of virtual exchange.

Now, the Finance Act, of 2022 has introduced the concept of taxation of virtual digital assets i.e., crypto and bitcoins.

Taxation of Cryptocurrency

Income from the transfer of any virtual digital asset (VDA), which can include everything, i.e., digital coins such as bitcoin and Ethereum and non-fungible tokens, is taxable at a rate of 30% beginning April 1, 2022.

As a result, investment in cryptocurrencies has become less profitable than it was previously.

How will it work?

• The profit from the selling of cryptocurrencies would be taxed at a rate of 30%.
• The only expense that can be reduced from the sale consideration for computing profit is the ‘cost of cryptocurrency acquisition.’
• No other expenses will be allowed to be deducted.
• Losses from VDA cannot be set off against any other income. Similarly, any other loss cannot be set off against VDA income.

Cryptocurrency Tax rules for filing ITR:

• TDS @ 1% is applicable on payment for the purchase of VDAs.
• The regulations relating to 1% TDS will take effect on July 1, 2022, and gains will be taxed on April 1, 2022.
• A person may sell cryptocurrency for a profit or a loss, but a TDS of 1% is unavoidable.
• The TDS threshold limit for designated payers, which includes individuals/HUFs who are not required to have their accounts audited under the I-T Act, would be ?50,000 per year. For others, this threshold limit is Rs.10,000.

One?can request a refund of TDS paid on a transaction that resulted in a loss. As a result, if you’ve made a bitcoin transaction, it’s better to file an income tax return to properly disclose the same and get the benefit of TDS.

This content is meant for information only and should not be considered as an advice or legal?opinion, or otherwise.?AKGVG & Associates?does not intend to advertise its services through this.