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Taxation on cryptocurrency: Here’s everything you need to know

In the age of globalization, one thing that draws the attention of several new investors, finance experts is cryptocurrency. Budget 2022 was like a sweet surprise in the unregulated world of cryptocurrencies in India. The inclusion of crypto assets in the taxation mechanism is just the first step towards regulating the crypto market. Before we discuss any further about the budget 2022 update, let’s understand what cryptocurrencies are

Cryptocurrencies are digital currencies secured by cryptography and based on blockchain technology. In simple terms, these currencies are designed to buy goods and services similar to our other used currencies. 

The popularity of virtual currencies such as Bitcoin, Ethereum, etc has increased considerably in the recent past. The crypto investment has grown rapidly despite the decentralized structure of cryptocurrency

 

Legal status of cryptocurrency

 

So far, the Government of India has not granted any status of legal tender to cryptocurrencies. However, in the announcement of budget 2022, welcoming the taxation move shows that the Government is receptive to the changing face of the crypto ecosystem in India. 

 

Long term capital gains on crypto assets

 

  • Budget 2022 has clarified that income from transfer of digital assets such as crypto is to be taxed at 30% with effect from April 1, 2022. 

  • From July 1, 2022, any person responsible for paying any sum in cash or kind for the transfer of virtual digital assets will have to deduct 1 % tax. Further, no deductions will be allowed except the cost of acquisition of digital assets. 

  • Further, any visual digital asset gifts will have to be disclosed and offered for tax in the hand of the recipient. 

 

However, how the tax is payable on the gains for FY 2021-22 is still uncertain with experts holding different opinions. The top CA in cryptocurrency points out that there could be two views of this situation. As per one view, gain realized up to March 31, 2022, can be treated as a long term capital gain and tax can be paid at the rate of 20