Decoding crypto taxation as per budget 2022-23

VDA will be taxed at a special rate of 30% of the profit on sale of such properties. The benefit of basic exemption limit is also not available. No deduction will be allowed in respect of any expenditure other than the cost of acquisition. Also, TDS will be deducted at the rate of 1% on the transaction value from July 1, subject to certain conditions.

Let us decode the above provision with some examples. Ram Kapoor acquired Cryptocurrency A in July 2020 5,000 Let’s say, Ram transfers this cryptocurrency A 65,000 more TDS deducted in August 2022 650. The profit shall be determined as 60,000. Tax will be payable on cess in excess of 30% i.e. 18,720. its, 650 TDS has already been deducted. Therefore, the balance tax payable in this transaction will be 18,070.

It is noteworthy that the above announcements made in the Finance Bill are progressively applicable from 1st April. Let’s say the value of crypto currency A is 45,000 on 3 February. Ram should transfer crypto currency A to 45,000 more book profit 40,000.

Considering this as short term capital gain for the financial year 2021-22, tax will be payable for this transaction on the basis of slab rates. Let the basic exemption limit of Ram’s total income be within 2,50,000, no tax is payable on this transaction. Ram will have to acquire it again at the current price if he wants to continue issuing cryptocurrency A. 45,000. Now as in the example above, let’s say he transfers this cryptocurrency A for 65,000 more TDS deducted in August 2022 650. Profit will be determined 20,000. Tax will be payable on cess in excess of 30% i.e. 6,240. its, 650 TDS has already been deducted. Therefore, the balance tax payable in this transaction will be 5,590. Hence, Ram’s tax is able to save 12,480.

Loss on transfer of VDA will not be adjusted against any income. Gain on crypto cannot be set off against loss on shares. Also, crypto losses will not be eligible to be carried forward to subsequent years. While there is some debate on this, my interpretation is that the restriction on set off also extends to adjustments between crypto trades. For example, Govind transfers cryptocurrency X at a profit of 50,000 and in the same year he transferred cryptocurrency to Y for a loss of 35,000 They believe they have to pay tax on the net profit 15,000 only. This belief of Govind is not correct. tax on profit of 50,000 is payable on cess in excess of 30%. Losses on transfer of Cryptocurrency Y cannot be set off or forward. TDS to be deducted on the transaction by the transferee as payment consideration if the value of the transaction exceeds 10,000. This limit has been increased for certain specified person. 50,000 These distinguished individuals include:

(i) Individual or HUF with income other than from business/profession

(ii) Individual or Hindu Undivided Family:

a. business turnover at least 1 crore

b. less than professional fees 50 lakhs

For example, the asset transfers the crypto currency B to Asif. 48,500 on 6 June 2023. Asif is a salaried person and does not have any income from business/profession. Therefore, he is the specified person in terms of condition (ii) stated above. Accordingly, he is not required to withhold TDS from the amount due and can pay in full 48,500 to the estate.

It is pertinent to note that TDS provision is applicable even when the consideration is fully/partially or in lieu of any other virtual digital asset.

Nitesh Buddhadev is the founder of Nimit Consultancy.