Cryptocurrency winnings are subject to a 30% tax in India. Cryptocurrencies, non-fungible tokens (NFTs) and similar entities are grouped under virtual digital assets (VDAs) in the country and face a strict tax structure under the new regime which came into effect on 1 April of this year. Although this may seem like a difficult decision at first – as all taxes do – it is actually a precautionary measure that can help users to be wary of their crypto investments and not invest all their money in a very volatile industry without a solid understanding, mainly due to promises of mega returns in a short period of time. Taxing cryptocurrencies is also seen as a way to legitimize crypto-assets in India, without outright banning them, allowing investors and traders to continue dealing with crypto without much hassle.
First, let’s understand India’s crypto taxation scenario and how it compares to other countries.
How much tax is levied on crypto earnings in India?
In the 2022-23 Union Budget, Finance Minister Nirmala Sitharaman proposed a tax policy on VDAs. All earnings from the sale of VDAs will be subject to 30% tax. Note that there are no thresholds below which the VDA tax will not be imposed. This means that even if a taxpayer’s total income is below the threshold of Rs 2.5 lakhs, the earnings will be taxable.
In addition to this, a 1% TDS will be charged on all VDA transactions, which will be deducted by the crypto exchange who will credit or make payment to the seller.
ALSO READ: All About Crypto TDS in India: How Cryptocurrency Exchanges Respond to CBDT FAQ
How does Indian taxation compare to other countries?
In the United States, cryptocurrencies are subject to capital gains tax – the same taxation as stocks. The federal tax rate on cryptocurrency capital gains ranges from zero to 37%. For example, if you invested $100 and cashed out $120, your capital gain would be $20.
The UK also follows a similar capital gains tax structure to the US, with a non-taxable allowance of GBP 12,300.
Some countries are considered crypto tax havens. In Germany, cryptocurrency is not considered currency, commodities or even stocks. It is considered private money. If you’ve owned crypto for more than a year, you don’t need to report it on your tax return and the sale will be tax-free regardless of the profit. If you sell your crypto asset within 12 months, profits up to 600 EUR will be tax-free. Companies, on the other hand, will have to pay corporate income taxes on crypto gains.
Similarly, in Bermuda, cryptocurrencies do not invite income, capital gains, withholding or any other taxes.
Crypto tax in India: control or caution?
Compared to some countries, India’s tax structure may seem a bit more relaxed, while compared to other countries, India’s crypto tax may seem harsh. However, the announcement of a crypto tax in India was generally welcomed by crypto traders and investors in the country, as it was seen as a sort of legitimization of digital assets by the Center.
Add to that the fact that the government is planning to introduce a central bank digital currency (CBDC) soon, which is yet another sign that India is pro-crypto (for now). For those unaware, CBDC refers to the virtual form of a fiat currency, like the rupee in the case of India. Legal tender will be issued by the RBI in a digital format. Since it will be considered a digital token of the official currency of the country, it will be regulated by the central bank. The CBDC is expected to support the Indian banking system or supplement existing frameworks.
That said, there are strong arguments that cryptocurrencies face a high taxation structure in India. And it is quite true. In fact, the crypto tax rate in India is kept higher than any other asset class. By comparison, securities in India are taxed at a long-term capital gains tax rate of 10% and a short-term capital gains tax rate of 15%.
In addition to the 30% crypto tax, as mentioned, there will be an additional 1% TDS, which came into effect on July 1. To provide further clarity, the Central Board of Direct Taxes (CBDT) published an FAQ in June, detailing all the guidelines on crypto TDS.
Some viewed this as a positive decision. “As a member of the association, we had explained the practical problems in the way [the ministry was] think of TDS and had come up with a viable solution. The same has been honored now and [the ministry has] published our intended guidelines as standard operating procedure for collecting information and money on TDS,” said Sathvik Vishwanath, CEO and co-founder of crypto exchange Unocoin. “I would consider this a small victory for the crypto community and we look forward to such encouragement from other departments as well.”
Others have tried to cash in and use TDS as a business opportunity to attract more customers to their crypto platforms.
Prashant Kumar, the founder of crypto trading platform weTrade, told ABP Live: “We have decided that we will take 100% of the TDS burden from our clients by giving them instant cashback equal to the TDS deduction, which will give them will make it even easier to comply. with the regulations. weTrade makes crypto investing easy and rewarding, and by turning it into a TDS-free platform, we hope our clients love us even more.
He added, “We at weTrade wholeheartedly welcome the decision of the Ministry of Finance regarding the clarification that was released yesterday regarding TDS on VDA. The intention behind it is positive and it helps bring more transparency around crypto investments by making them easily traceable which will help the industry grow in the long run with the support of regulators.
Kumar said what is “particularly commendable” is that the government has ensured that common investors are not harassed when investing, by imposing responsibility for membership on stock exchanges and clearly articulating the role of exchanges and brokers. “The 1% TDS is only applicable when selling, which is nonetheless claimable in next year’s filings.”
India’s crypto tax, while high, serves as a stark warning to ordinary investors who may not have a good understanding of the extreme volatility in the global crypto market. There is still a lack of in-depth knowledge of cryptos among the general masses of the country. And, with simple KYC procedures and the availability of exchanges and wallets on mobile apps, getting started with crypto investments is very easy for anyone with a working bank account and government credentials. So, a harsh crypto tax is supposed to make people be wary of their investments, read the fine print, and understand the expected returns before putting their money in.
Disclaimer: Crypto products and NFTs are unregulated and can be very risky. There may be no regulatory recourse for any loss arising from such transactions. Cryptocurrency is not legal tender and is subject to market risk. Readers are advised to seek expert advice and carefully read the offering document(s) and related material material on the subject matter before making any type of investment. Cryptocurrency market forecasts are speculative and any investment made will be at the sole cost and risk of the readers.