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Crypto Taxation from Budget 2022

Finance Minister Nirmala Sitharaman, while presenting the 2022-23 Union
Budget on February 1, announced a 30 percent tax on income generated from
the transfer of any digital asset.

Understanding virtual digital assets

What are ‘virtual digital assets’ according to the Finance Bill 2022? Fundamentally as per the government, what is cryptocurrency, asset and commodity?

A virtual digital asset is:

  • any information or code or number or token (not an Indian currency or any foreign currency) generated through cryptographic means 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. The Non-fungible tokens which are included will be notified by the Central Government.
  • Central Government may notify any other virtual digital asset as virtual digital asset by way of notification in the Official Gazette.
  • Central Government can notify such assets which shall not be considered as virtual digital assets for the purposes of the proposed section.
Are stablecoins treated as foreign currencies or VDA?

The government has not specifically clarified stablecoins in the Budget2022. Since these coins may also be based on cryptocurrencies, they’ll have to meet the criteria for VDA listed above. Central government may choose to notify or de-notify them as mentioned above.

Are NFTs treated as VDAs ?

Non fungible token and  any other token of similar nature are included in the definition of VDA. The Non-fungible tokens which are included will be notified by the Central Government.

What is the meaning of ‘transfer’ of virtual digital assets?

The Budget has not specifically defined what ‘transfer’ entails in respect of VDAs.
‘Transfer’ of ‘capital assets’ has been defined as follows -
"transfer", in relation to a capital asset, includes,
(i) the sale, exchange or relinquishment of the asset
(ii) the extinguishment of any rights therein
(iii) the compulsory acquisition thereof under any law
(iv) in a case where the asset is converted by the owner thereof into, or is treated by him as, stock-in-trade of a business carried on by him, such conversion or treatment
(v) the maturity or redemption of a zero coupon bond
(vi) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract

We are of the opinion that the government will have to lay down what all is included in the phrase ‘transfer’ in the context of virtual digital assets. This is because VDA may
be transferred in exchange for goods, to clarify P2P transactions, wallet to wallet transfers etc.

Do the coins I earn on cred, paytm and other such consumer apps get qualified as virtual digital assets?

These coins will have to fall within the definition of VDAs (mentioned above). Or else they’ll have to be notified as VDAs by the Central Government.

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Effective date for taxation of crypto income

Crypto income will be taxed effective 1st April 2022, which means taxpayers need to think about advance taxes for FY 2022-23.

WHEN IS THE TAX RULE APPLICABLE FROM?

Crypto income will be taxed effective 1st April 2022, which means taxpayers need to think about advance taxes for FY 2022-23.

WHAT SHOULD THE TAXPAYERS DO ABOUT CRYPTO INCOME FOR FY 2021-22?

The tax department has clarified that such income is definitely taxable. Even though crypto tax laws are applicable from 1st April 2022, right now there is no clarity under which head income for FY 2021-22 should be taxed.
If the need arises the department may issue a clarification in this regard.
We will update this document when there is more clarity. However, we strongly advise you to deliberate on whether and how you need to pay taxes for FY 2021-22 and consult an expert at Cleartax to arrive at your decision.

WHAT SHOULD TAXPAYERS WHO HAVE ALREADY PAID CAPITAL GAINS TAXES FOR THEIR SALES IN PREVIOUS YEARS LIKE FY 2021-22 DO?

Unfortunately, tax returns for FY 2020-21 and prior years can neither be revised or edited right now. However, this is a good opportunity to think about how you will pay taxes for FY 2021-22.

YOU HAVE MADE CRYPTO SALES FOR THE LAST 5 YEARS BUT HAVE NOT REPORTED CAPITAL GAINS INCOME AGAINST IT, WHAT SHOULD YOU DO?

We urge you to consult a tax expert and consider paying tax on your gains. The income tax department has clarified that income from sale of cryptos is taxable, even though the precise tax rate is applicable from 1st April 2022, you must pay tax on income earned before that. Please consult an expert.

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How is crypto
income calculated?

CRYPTO INCOME CAN BE CALCULATED BY REDUCING THE COST OF ACQUISITION FROM THE CONSIDERATION RECEIVED.

For calculating crypto income-

  • No deduction is allowed for expenses
  • Only cost of acquisition can be deducted
  • Crypto loss cannot be deducted from crypto income (see more below)
  • No set off of loss from any other type of income (business income or any salary income or house property income etc)
  • No carry forward of any losses from cryptos to future years is allowed for set off against crypto income in future years.

HOW WILL INCOME TAX BE CALCULATED ON CRYPTO?

Where income of a taxpayer includes any income from ‘transfer’ of any virtual digital asset, income tax payable shall be aggregate of

  • Tax on income from VDA @30%
  • Tax on (total income - income from VDA)
Example of tax calculation on sale of BTC

How are virtual digital asset losses treated?

The Budget 2022 has laid down that no set
off of any loss is allowed from crypto gains. Let’s understand this further.

The Budget 2022 has laid down that no set off of any loss is allowed from crypto gains. Let’s understand this further -

Whether loss from one coin to another coin shall be allowed. This is a grey area. We believe such a set off must be allowed. However, the way the law has been worded, it shows that the government intends to liken such income to that from gambling, horse racing, crosswords or lotteries. In such incomes no loss set off is allowed. And a flat rate of 30% tax is levied. More clarity is required on this aspect from the government authorities.

Secondly, the law also states that loss cannot be set off from any other head. Such as gains from sale of equity, mutual funds, assets such as property etc won't be allowed to be set off from loss from crypto.
No carry forward of loss shall be allowed. This means if you have loss in one financial year, it cannot be carried forward to the next year for set off against gains in the next year.

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Discussing unique crypto transaction scenarios

Get answers to your questions regarding crypto taxation in different scenarios.

There are certain DeFi scenarios that are held with cryptocurrencies. How will those be treated?

The Budget has not clarified or detailed out any of these scenarios. Another concern is that the Budget does not address any other type of income such as income from Staking, Mining, Lending and Borrowing.

In such a scenario, we advise you to take help from an expert. Interest income or other passive income generated from staking or lending and borrowing cryptos may be reported as income from other sources, where tax is applicable according to slab rates for the taxpayer.

How will Airdrops be taxed?

The Budget has not clarified or detailed out any of these scenarios. Another concern is that the Budget does not address any other type of income such as income from Staking, Mining, Lending and Borrowing.

What happens when there is a fork? I have 1 BTC and post fork I have 2 coins - 1 BTC and 1 BTC cash

There will be no tax payable at the time the investor receives bonus BTC post fork. However, at the time of sale, 30% tax will be levied on the total sale price less cost of acquisition. The cost of acquistion of the bonus BTC will be taken as ‘Nil’.
Consider the below example to understand it better.

In the above scenario,  the original BTC has a profit of Rs. 200 (Rs.300 sale -Rs.100 cost). Whereas in case of bonus BTC, the profit is Rs.300 (Rs.300 sale-Rs.’0’ cost). The investor will have to pay 30% tax i,e Rs.150 on the total profit of Rs.500.

What happens when I transfer coins between my personal wallets?

There will be no tax if the transfer is being made from one wallet to another of same person, since the Digital assets have not been transferred from one person to another.

What happens when I buy a crypto outside of an exchange through P2P transfer?

There will be no Tax if the transfer is being made from one wallet to another of same person, Since the Digital assets has not been transferred from one person to another.

Answer : There will be no tax payable at the time of purchase of Crypto . TDS will be deducted by the transferor @ 1%

Let’s say I won a few coins by playing games on some blockchain. How will my earnings through games be taxed?

Two taxable events will arise in this scenario. Firstly, 30% tax will be levied on the market value of the coins at the time you win such coins.

The next taxable event will arise when such coins are sold or transferred. Tax rate of 30% will be levied after deducting the cost of acquisition at this point. Cost of acquisiton here would be the market value of the coins considered for paying tax at the time of winning of such game/lottery.

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How Crypto Tax Laws affect Individuals and Businesses

Crypto tax laws affecting - Individuals
I am an individual who holds crypto, how does it affect me?

Individuals are covered under the new tax laws. Not only will you now have to pay tax on your crypto gains, compliance will also be required for deduction of TDS before giving consideration to anyone for transfer of crypto.

I AM 15 AND TRADING CRYPTO - HOW DO I PAY TAXES? IF I DON’T, DOES MY DAD GET INTO TROUBLE?

Anyone can get a PAN and report income and pay tax. Even minors can. Income which is earned by one’s own skill or knowledge is not clubbed and is reported in an individual's own return. You should prepare to pay taxes and file your own income tax return.

I bought BTC in 2015 and I don’t have details on cost of purchase as the exchange i bought is now defunct? If I sell crypto this year, how will I report it?



It is advisable to pay tax on the gains made, historic prices of BTC can be sourced to arrive at the amount of gains made.



I bought BTC in Binance/Coinbase a long time back and now I am transferring it to Indian Exchanges.
How will I calculate my cost of purchase? Should I use dollar value? I do not have any transaction statements from Binance/Coinbase.

Although there is no specific guideline in this aspect. You should convert your dollar value of purchase into INR, using SBI rates for conversion from USD to INR.

Crypto tax laws affecting - Businesses
I am a business who accepts crypto for sales of goods and services, how does it affect me?

The government has not clearly defined the situation where crypto is accepted in place of currency. Infact the government has been clarifying that virtual digital assets are not currencies. Therefore, a payment of goods and services via crypto will qualify a transfer of crypto. TDS implication will come into play i.e. those transferring crypto shall have to deduct TDS. Because a transfer has taken place, such an event will also lead to a tax event for the one transferring crypto. Besides, the business will have to report receipts for the value (FMV) of crypto accepted as consideration towards providing goods and services. Once the business sells these cryptos or transfers them in any manner, again an event of transfer of crypto will take place and tax will have to be paid on the transfer.

I am a business who invests part of cash proceedings in bitcoin, how will I get affected?

So long as you do not sell your holdings you do not have to pay tax on them. Also note that Indian laws require that all companies must disclose their cryptocurrency holdings in their financial statements.

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