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Rules Explained for Bitcoin, NFT Investors, Crypto Miners

Starting from April 1, cryptocurrency users need to pay income tax on the gains from the virtual assets. Finance minister Nirmala Sitharaman introduced a new section 115BBH to provide a method of computation and tax rate for the income arising from the cryptocurrencies, Nonfungible tokens or NFTs and other virtual digital assets. According to the proposed rule, a flat 30 per cent tax will be levied on all virtual assets. A 1 per cent tax deductible at source (TDS) will also be applicable on all transactions involving cryptocurrencies and all digital assets. Moreover, the losses incurred from the one kind of virtual digital assets can not be set off against the gains from any transaction involving another digital tokens.

All you Need to Know About the New Cryptocurrency Tax:

1) The income from the sale of virtual assets such as cryptocurrencies, NFTs will be taxed at a flat rate of 30 per cent

2) There will be no deduction for any expenses incurred on cryptocurrency transactions, other than cost of acquiring such assets.

3) Loss incurred from cryptocurrency or virtual assets cannot be set-off against any other income (shares or mutual funds) of the taxpayer. Hence all loss transactions will be ignored for tax calculation and only profit will be calculated.

4) 4) Loss arising from digital asset cannot be carried forward to the next year

5) Additionally, any payment of proceeds to a taxpayer from the sale of digital assets will attract a 1 per cent TDS on transactions above Rs 50,000 in a year.

6) Gifting cryptocurrencies and NFTs will also be taxable for the recipient.

Example: If you have sold virtual digital assets worth Rs 1 lakh and the cost of acquisition is Rs 20,000. The net income from the sale of virtual asset will Rs 80,000. (Rs 1,00,000- Rs 20,000). According to the new income tax law, there will be tax liability of Rs 24,000. It must be mentioned that loss of virtual assets can be settle against loss of virtual assets.

Explaining the new rule, Manoj Dalmia, founder, Proaasetz Exchange, said, ” As per the Finance Bill one needs to follow a specific taxation regime for virtual digital asset (VDA) This includes flat 30 per cent tax on profits without any slab deduction. The loss in one VDA will not be set off from profit in another VDA. Hence all loss transactions will be ignored for tax calculation and only profit will be calculated.”

He further explained, “All trading pairs be it fiat to cryptocurrency or cryptocurrency to cryptocurrency will be a taxable event. Apart from holding and trading even gifting of digital token be will taxable in the hands of the recipients.”

Crypto Mining in India: All you Need to Know about New Income Tax 

The finance ministry also clarified that the cost of mining of crypto assets would not be allowed as a tax deduction. The cryptocurrency investors should not consider the infrastructure expenses incurred in mining virtual digital assets (VDA) to be part of the cost of acquisition.

“The new cryptocurrency tax even covers miners as no expenses of setting up mining are allowed as deduction. Therefore mining transaction cost of purchase will be Zero. What can be set off is only the cost of acquisition or purchase on VDA,” Dalmia added.

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Crypto prices up as Bitcoin, ether, shiba inu, dogecoin gain: Check latest rates here

The global cryptocurrency market capitalization today is $2.1 Trillion, a 1.6% change in the last 24 hours. Total cryptocurrency trading volume in the last 24 hours is at $69.3 Billion with Bitcoin dominance at 40.3% and Ethereum dominance at 18%.

Bitcoin on Sunday went up by 0.6% remaining above the $42,000 level, as per CoinGecko. The digital token was trading almost flat at $44,644.50 on Sunday morning. However, the world’s largest and most popular cryptocurrency is down about 8% in 2022 (year-to-date or YTD) so far as it is about 30% below its record high of near $69,000 that it had hit in November last year. While Ethereum went up 1.3% and was trading at $3,151.25, Shiba Inu was up 1.6% and was trading at $0.00002457. Dogecoin witnessed a much higher surge at 4.8% trading at $0.137411.

In a related development, taxation of virtual digital assets (VDAs) or “crypto tax” proposed in the Union Budget 2022-23 is set to be implemented from April 1, as the Lok Sabha on Friday passed the Finance Bill, 2022. The Lok Sabha also passed the amendments introduced in the Finance Bill, 2022 regarding clarification on taxation of virtual digital assets.

Section 115BBH of the Bill deals with tax on virtual digital assets. Clause (2)(b) prevents loss on the trading of crypto assets from being set off against income under “any other provision” of the IT Act. As per the amendment, the word “other” is dropped. Under the amended law, loss from crypto assets cannot be set off against gains in crypto assets as well.

“The proposed 30 per cent tax irrespective of whether crypto-assets are capital assets or not will be detrimental to the investor growth that the industry has been seeing so far. This move will make day-traders incapable of saving on taxes even if they aren’t in the income tax brackets currently,” said Nischal Shetty, Founder and CEO of crypto exchange WazirX.

“Furthermore, not allowing investors to offset losses from one crypto trading pair by gains from another type will further deter crypto participation and throttle the industry growth,” he said.

(With inputs from agencies)

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Cryptocurrency: Cryptocurrency clarification explained: Loss in one crypto asset can’t be set off against another | India Business News

NEW DELHI: In a setback for crypto enthusiasts and trading platforms, the government on Monday clarified that losses incurred from one kind of virtual digital assets (VDAs) cannot be set off against the gains from any transaction involving another VDA while computing tax. This implies that investors will have to pay a 30 percent tax for every gain they make and losses are not deductible from the final taxation amount if different tokens are traded.
What does this tax clarification imply?
So, when you earn profit on one token, but lose on the other, you are still obligated to pay tax of 30% on the profited token. “These steps can hinder the growth of the crypto ecosystem, which is currently witnessing a huge spike in the country,” said Edul Patel, CEO and founder Mudrex.
” It means that losses booked in one class of asset (like bitcoin) cannot be set off against income from other class of asset (like etherium). Investors will have to treat each virtual digital asset separately for the purpose of taxation. This is discouraging for the crypto industry and for the investors as well,” Maneet Pal Singh, Partner, I.P. Pasricha & Co.
For example, an investor has earned Rs 100000 from sale of one class of asset (like Bitcoin) involving and simultaneously incurred losses worth Rs 50,000 from another class of asset(etherium), in that case, the investor will have to pay a 30 percent tax on the Rs 100000 profit from bitcoin and loss of Rs 50,000 from etherium will not be allowed to be set off . In a scenario where losses of one class would have been allowed to set off against gains from another class, the investor would have had to pay tax only on the net gain of Rs 50, 000.
“Every VDA is considered to be a separate asset which will have its profit or loss booked independently. This could have been done to prevent unaccounted VDA swaps. Once CBDCs are implemented, the same is expected to ease out since on-chain records of profit/loss will be available for taxation purpose,” noted Amit Nayak, cofounder and CEO of Sahicoin.
“While India awaits a crypto-specific legislation, the government seems to be further affirming its stance in relation to levy of tax on cryptocurrency. The government move might be taxing for the crypto community since the tax implications on trading in crypto continues to be stringent, while its regulatory framework remains unclear,” said Rishi Anand, Partner, DSK Legal.
The move will discourage investors as it increases risk; talent will move outside India
“Taxes imposed by the Indian government are quite harsh for the virtual digital assets industry. Not being able to offset the losses of one virtual digital asset with another will discourage a lot of investors as it increases their risk and decreases the end reward. This would disincentivize them from trading with Indian exchanges and deal only with foreign exchanges or decentralized exchanges. The proposed tax framework on digital assets would lead to a decline of the blockchain industry in India and talent and companies would eventually move outside,” said Bhagaban Behera, CEO & Co-founder of Defy.
The move will drive people to the grey market
Ashish Singhal, Co-founder and CEO of CoinSwitch said, “This is detrimental for India’s crypto industry and the millions who have invested in this emerging asset class. We fear the lack of provision to offset losses will drive away users from KYC-compliant exchanges and platforms to the underground peer-to-peer grey market, which would defeat the purpose of the tax.”
Singhal added that the move is also regressive and not in line with the Government’s recognition of VDAs as an emerging asset class. “If a regressive provision such as this would have been applicable in equities, it would have discouraged retail investors from participating.”
WazirX’s CEO Nishchal Shetty said, “Treating profits and losses of each market pair separately will discourage crypto participation. It’s very unfortunate, and we urge the government to reconsider this.”

The government also clarified that while the cost of acquisition is deductible from overall gains, mining infrastructure is not considered for the same.
Mining is the process of generating new coins and verifying new transactions on a blockchain.
“Infrastructure costs incurred in mining of VDA (eg. crypto assets) will not be treated as cost of acquisition as the same will be in the nature of capital expenditure which is not allowable as deduction,” the government said.
The move will make crypto unsustainable
“When countries across the globe are making crypto inclusive, the new VDA taxation poses the risk of going backward in the advancement India made in this industry. In addition to hindering the adoption of crypto, it also affects the industry’s sustainability and innovation. But, we hope the government rethinks this decision, said Vijay Pravin, CEO & Founder, bitsCrunch.
The clarification on mining crypto will be a barrier in blockchain disruption
“As provided in the union budget, no deduction except cost of acquisition is allowed in case of Virtual digital assets (VDA). Mining a cryptocurrency majorly involves the cost of electricity and computers, one will have to pay taxes on the entire value of the coins or token you mine when they sell them. This could prove to be detrimental for emerging classes of asset resulting as a barrier in block chain technology upgradation,” said Maneet Pal Singh, Partner, I.P. Pasricha & Co.
The 2022-23 budget has brought in clarity concerning the levy of income tax on crypto assets. From April 1, a 30 per cent I-T plus cess and surcharges will be levied on such transactions in the same manner as it treats winnings from horse races or other speculative transactions.he budget 2022-23 also proposed a 1 per cent TDS on payments towards virtual currencies beyond Rs 10,000 in a year and taxation of such gifts in the hands of the recipient.
The threshold limit for TDS would be Rs 50,000 a year for specified persons, which include individuals/HUFs who are required to get their accounts audited under the I-T Act.
The provisions related to 1 per cent TDS will come into effect from July 1, 2022, while the gains will be taxed effective April 1.
Separately, the government is working on legislation to regulate cryptocurrencies but no draft has yet been released.




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Income from cryptocurrency, NFTs to be taxed at 30 per cent

Finance Minister Nirmala Sitharaman on Tuesday announced a taxation regime for virtual digital assets given the “phenomenal” increase in their trading. Many people consider this to establish the legality of private cryptocurrencies.

In the Union Budget 2022-23, the Finance Minister proposed that any income from transfer of any virtual digital assets will be be taxed at 30 per cent. Further, no deductions would be allowed except for the cost of acquisition. Any loss can not be set off, she further proposed.

The gift of the virtual digital asset would also be taxed at the hands of the recipient.

Bitcoin and Ethereum continued to trade higher.

Amit Singhania, Partner, Shardul Amarchand Mangaldas & Co said, “There is some clarity on the taxation digital currencies. Prima facie it seems digital currencies will be taxed akin to speculative income at 30 per cent flat on a gross basis. Further the introduction of TDS on crypto-transfers will enable the government to better monitor crypto transactions.”

According to the Budget, to define the term “virtual digital asset”, a new clause (47A) is proposed to be inserted to section 2 of the Act.

“A virtual digital asset is proposed to mean any information or code or number or token (not being Indian currency or any foreign currency), generated through cryptographic means or otherwise, by whatever name called, providing a digital representation of value which is exchanged with or without consideration, with the promise or representation of having inherent value, or functions as a store of value or a unit of account and includes its use in any financial transaction or investment, but not limited to, investment schemes and can be transferred, stored or traded electronically.”

Non fungible token and any other token of similar nature are included in the definition, it further said.

Published on


February 01, 2022


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Cryptocurrency has some financial stability issues: Principal Economic Advisor

Cryptocurrency has some financial stability issues:
Image Source : ANI

Cryptocurrency has some financial stability issues: Principal Economic Advisor

Highlights

  • Al Salvador adops Bitcoin but there are still financial stability issues
  • This a matter of some debate both inside the government and even in Parliament: Sanjeev Sanyal
  • PM Modi had chaired meeting on way forward for managing cryptocurrency sector in Nov 2021

Al Salvador has adopted Bitcoin but there are still financial stability issues relating to cryptocurrency highlighted by the Reserve Bank of India, Principal Economic Advisor Sanjeev Sanyal said on Monday and noted that the government will take a “balanced view”.

“This a matter of some debate both inside the government and even in Parliament. This is something that is currently in discussion. We understand the various issues around that. RBI has highlighted the financial stability impacts of this. We can also see it in other countries, for example, El Salvador has adopted Bitcoin,” Sanyal said answering a query on cryptocurrencies at a press conference here.

“There are some financial stability issues. But there are also other arguments that are made in terms of innovation and so on. A balanced view on this will be taken. This is not something we have covered in the economic survey, and I’m not quite in a position to comment on what the current thinking is, because that’s still evolving,” he added.

Prime Minister Narendra Modi had chaired a meeting on the way forward for managing the cryptocurrency sector in November last year.

A consensus had emerged at the meeting for “progressive and forward-looking” steps while ensuring that an unregulated crypto market does not become an avenue of “money laundering and terror financing”. The meeting was an outcome of a consultative process involving the Reserve Bank of India, Finance Ministry and Home Ministry as also experts.

The government had intended to bring a bill relating to cryptocurrency in the winter session of parliament but decided to hold more deliberations before coming up with legislation.

(With ANI inputs)

ALSO READ | Budget 2022 expectations: Clarity on crypto taxation, hike in 80C limit, duty rationalisation on EVs

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