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Calculating Cryptocurrency Taxes: What Will Be Taxed, What Won't, How and When?

Calculating Cryptocurrency Taxes: What Will Be Taxed, What Won't, How and When?
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How to Calculate Tax on Cryptocurrency Income:

The declaration in Budget 2022 of a flat 30% tax on income from the transfer of virtual digital assets (VDAs), including cryptocurrencies and NFTs, has been welcomed by India's crypto community. Even if the VDA tax rate is high, they are pleased that crypto has achieved some respect by being mentioned in the official Budget paper for taxes purposes. However, Finance Minister Nirmala Sitharaman has underlined that the levy of tax on income from VDAs, including cryptocurrency, does not imply that they are legitimate.

While the imminent bill to regulate virtual digital assets will provide considerable clarification on the legality of Crypto, a number of crypto investors are confused about calculating their tax due. If you're curious about crypto taxes, keep reading to learn out. Budget 2022 proposes the creation of a new Section 115BBH for the taxation of individuals whose sources of income include money from the transfer of VDAs. "The proposed section 115BBH seeks to provide that where an assessee's total income includes any income from the transfer of any virtual digital asset, the income tax payable shall be the aggregate of the amount of income-tax calculated on income from the transfer of any virtual digital asset at the rate of 30% and the amount of income-tax with which the assessee would have been chargeable had the assessee's total income been reduced by the aggregate of the incom.

According to the Budget Memorandum, an individual's overall tax liability for cryptocurrencies or other VDAs will be the sum of revenue from the transfer or sale of such assets plus the tax s/he would have paid even if there was no crypto income, according to Tax and Investment expert Balwant Jain. "From the next fiscal year, a flat 30% tax will be levied on profits derived from the transfer or sale of digital assets, including crypto and NFTs" (FY 2022-23). "Investors should also remember that crypto losses cannot be written off or carried forward," Jain told FE Online.

When will you have to pay a 30% tax on bitcoin revenue, NFT?

According to the Budget paper, cryptocurrencies and other VDAs would be subject to a 30% tax beginning in Assessment Year 2023-24. That means that in fiscal year 2022-23, all of your revenue from cryptocurrency trades will be taxed at a rate of 30%. According to Jain, investors can pay tax on revenue from crypto and NFTs until the end of FY 2021-22 under current taxation regulations.

Taxation: Will you have to pay taxes on both your crypto earnings and losses?

Losses incurred as a result of the transfer of crypto assets cannot be offset against other income and cannot be carried forward. "However, the loss resulting from the transfer of crypto assets can be offset against the gain resulting from the transfer of crypto assets in the same fiscal year," Dr Suresh Surana, Founder, RSM India, explained. Dr. Surana provided an example: "For example, an individual has a salary income of Rs.20 lakh, a gain on sale of Bitcoin of Rs 5 lakh, and a loss on sale of Ethereum of Rs 2 lakh." S/he can deduct the loss, and the net gain from the sale of crypto assets (both Bitcoin and Ethereum) of Rs 3 lakh is liable to tax at 30% plus relevant surcharge (nil in this case) and cess (1.2 percent viz 4 percent of 30% tax), for an effective tax rate of 31.2 percent. The salary income of Rs.20 lakh will be taxed at the standard tax slabs ranging from 5% to 30% (with surcharge and cess), depending on whether the assessee has chosen the optional tax regime under Section 115BAC of the IT Act or the pre-existing tax slabs."

According to Professor Ankur Sinha, Associate Professor of Production and Quantitative Methods at IIM Ahmedabad, only gains will be taxed; losses will be exempt.

Let us know if you want to know more about cryptocurrencies related news.

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