Taxation rules that crypto investors must follow

From April 1, a 30% tax will be levied on the transfer of Virtual Digital Assets (VDA) or Crypto Assets. In addition, 1% Tax Deduction at Source (TDS) will be applicable on every transfer of such property. However, the TDS provision will be activated from July 1.

Notably, from 1st April, set-off of loss and carry forward will not be applicable crypto investment, To be sure, the cost of acquisition is allowed in the form of a deduction in crypto investments.

transfer of crypto

The government says the transfer of crypto will have a tax impact. This means that no tax will apply even if the amount of cryptocurrency you hold increases from $1 to $1,000, and you do not realize the profit. Transfer of capital asset has been defined in detail in Section 2(47) of the Income Tax (IT) Act. A transfer is when you sell property or give your rights to someone.

“Furthermore, if a crypto exchange liquidates your crypto in cases of share buyback, it is also considered a transfer. Furthermore, if you swap one crypto token for two tokens of the same value, Even then it is considered a transfer. In these cases, a flat 30% tax will be applicable,” said Amit Maheshwari, Tax Partner, AKM Global, a tax and consulting firm.

However, no tax will be levied if you transfer crypto to your personal wallet. Tax experts warn that transferring crypto below fair market value will put a tax burden on the receiver. For example, if someone sells bitcoin for $40,000 against the current price of $1,000, the recipient will be taxed as per the gifting provisions of the IT Act.

crypto as salary

There are instances where individuals get compensated in crypto for providing services. For individuals receiving crypto, there will be two stages of taxation.

“There is not enough clarity regarding the taxation of transactions where cryptos are received in exchange for goods or services. If a person is receiving crypto as remuneration or as payment for services rendered, it Potentially the receipt could be taxed as salary or freelancing income, and further taxes could apply when crypto is sold and converted to fiat, a recently introduced 30% tax Is.” Archit Gupta, Founder and CEO, Clear said.

According to Gupta, in a situation where payers or employers transfer crypto as remuneration, they may also face a 30% tax. The situation becomes more complicated if one of the parties is a non-resident in India for tax purposes.

gift of crypto

According to the new government regulations, crypto assets are proposed to be treated as ‘property’, and therefore, the gift of crypto will be taxable in the hands of the recipient if the value exceeds 50,000 within a financial year. For example, if you get 51,000 as crypto, then the entire amount will be added to your income and taxed as per the slab rate.

However, if crypto is received from specified relatives, it will not be taxable. According to the rules, certain close relatives are exempted from receiving gifts. Also, any gift such as crypto or money received on the occasion of marriage from non-relatives is also exempt from tax.

Airdrops and NFTs

According to Investopedia, an airdrop is a marketing strategy that involves sending coins or tokens to a wallet address to promote awareness of a new crypto token. Keep in mind that such airdrops will be taxed as per the laws of the Government of India.

“Airdrops can be treated as a gift and will be taxable in the hands of the recipient. The same can be done with NFTs,” Gupta said. So, for example, if a producer sells NFTs 1 lakh, he will have to pay tax at a flat rate of 30%. In both these examples, the procedure to calculate fair market value is not yet provided.

Tax Advice for FY22

While tax proposals for crypto are effective from April 1, there is some uncertainty regarding this for the just-ended fiscal year.

Maheshwari suggests filing tax on crypto investments as per the latest taxation laws. “The law clearly applies going forward and is not a retroactive tax. But we are advising the customers to file taxes as per the latest laws. There are some controversial situations like compensation for damages, which can be challenged later.”

Experts suggest that since crypto taxation is being implemented for the first time, individuals should consult a tax expert before filing returns.