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.