Insights

Crypto Tax Filing in India: Key Points Explained

August 25, 2022

The crypto tax law mandates that the taxpayer cannot carry forward cryptocurrency losses. Representative image
Cryptocurrency Tax in India (FY 2022-2023): The Union Budget 2022 proposed to classify cryptos as virtual digital assets (VDA). Even as crypto has been specified as assets, tax treatment is not like other assets. As per the new crypto tax rule, an individual has to pay a flat 30 percent tax on income earned from transfer of cryptocurrencies and other virtual digital assets, including NFTs.

According to Archit Gupta, founder and CEO of Clear (formerly Cleartax), the taxpayer is not allowed any deduction from the crypto asset’s sale price, except the cost of acquisition. The government recently clarified that the mining infrastructure costs will not be included in calculation of the cost of acquisition.

Crypto Tax Rule: No set-off of losses allowed
The intra-head adjustment of losses, i.e. set-off of loss arising from one VDA with the income from another VDA, is not permitted. Explaining this with an example, Gupta said, if you have a loss from the transfer of Bitcoin and have profited from the transfer of NFTs, you cannot knock off the Bitcoin loss from the profits on the transfer of NFTs. You will have to pay a flat rate of 30 percent tax on profits from NFT transfer.
Further, losses from crypto transfer cannot be set off against income under any other head. This means, gains from the sale of equity, mutual funds, assets such as property, etc., won’t be allowed to be set off from loss from crypto.

Crypto Tax Rule: No carry forward allowed
The crypto tax law mandates that the taxpayer cannot carry forward cryptocurrency losses.
“If you have a loss from the transfer of crypto in one financial year, it cannot be carried forward to the next year to set off against future gains,” Gupta told FE Online.

Crypto Tax filing Date: When Will You Have to Pay 30% Crypto Tax?
The taxpayer will have to pay 30 percent tax on cryptocurrency and other VDAs from Assessment Year 2023-24. That means all your income from the transfer of VDAs in FY 2022-23 will be taxed at the rate of 30 percent.
Gupta suggested that crypto investors should calculate their advance tax liability after considering the tax on income from the transfer of crypto and NFTs and pay the advance tax instalments accordingly.

Tax on Exchange of Crypto in Business Transaction
The government has made it clear that virtual digital assets (VDA) are not currencies.
“However, the term ‘transfer’ is not defined in relation to virtual digital assets as it is defined for capital assets in the Income Tax Act. The law needs to clarify what ‘transfer’ means and whether it covers transactions where goods or services are purchased against cryptos,” said Gupta.
“If the law clarifies considering such transactions under the definition of ‘transfer’, then the TDS provision will apply here,” he added. In this case, a person transferring crypto will be required to deduct TDS because a transfer has taken place. Such an event will be taxable in the hands of the one transferring crypto.

Besides, the business will be required to report receipts based on the value (FMV) of crypto accepted as a consideration for providing goods or services. If the business sells or transfers these cryptos in any manner, again, an event of a transfer of crypto will take place, and tax will have to be paid on such transfer.

Tax on Crypto/NFT Airdrops or Gaming Coins
Crypto and NFT companies often use airdrops to promote the launch of their project. Airdrops are similar to receiving a voucher with a discount code in your email.

“Such crypto airdrops or coins earned through gaming may be considered gifts within the construct of the Income Tax Act, and such gifts are taxable in the hands of the recipient,” said Gupta.

Tax on Crypto Received As Gift
The Government has also expanded the definition of specified movable assets to include virtual digital assets. Thus, gifts received in the form of crypto assets would be taxable if the fair market value exceeds the threshold limit of Rs 50,000.
However, Gupta said that the plain reading of the crypto tax provisions conveys that the gift received from relatives or on specific occasions will be exempt from tax.

(Cryptos and other virtual digital assets are unregulated in India. They are considered extremely risky for investment. Please consult your financial advisor before making any investment decision)

Written by Rajeev Kumar

Updated: June 9, 2022 6:22:42 pm