Crypto Taxation Guide ( After Budget 2022 )

In a big push for crypto adoption in India, the Indian government took a stand on cryptocurrencies and levied a 30% tax on income from digital assets. The long-awaited clarification on the taxation of cryptocurrency has been brought in the Finance Bill 2022.

For the first time, the government has officially termed digital assets including crypto assets under “Virtual Digital Assets”. These comprise all the cryptos such as Bitcoin, Ethereum, etc, and other digital assets such as Non-fungible tokens (NFTs). 

The government has announced a flat 30% income tax rate on the transfer of “crypto-assets” in the proposed tax regime. This is a major step by the government in providing clarity to investors and entrepreneurs transacting in digital assets in India and is a step in the right direction towards regulating the crypto industry. 


Key points introduced in the Budget: 

1) Income to be taxed at the flat rate of 30 %  

Income from the transfer of any VDA's is to be taxed at the flat rate of 30 %, with no distinction in terms of short and long-term gains.

For calculating the income only the cost of acquiring the asset is allowed as a deduction, no other expenses can be claimed as deduction.

Example: If an investment of INR 50,000 was made in crypto at the beginning of FY2022, and by the end of FY2022, the crypto was sold for INR 1,00,000 a flat 30% tax rate is applicable on income gain of INR 50,000. As an investor, you will be liable to pay INR 15,000 (plus surcharge and cess) as a tax on crypto income in that financial year. 


2) Crypto Taxation on any Loss from Transfer of Virtual Assets

The government has clarified that loss incurred from the transfer of virtual assets cannot be set off against any other head of income, but it can be set off against the income from any virtual asset during that year.

Also, crypto losses can not be carried forward to subsequent years.

Example: Suppose the following  transactions take place during FY 2022-23  

 1: Bitcoin bought for Rs 5 Lakh and sold for Rs 6 Lakhs

 2: Ethereum bought for Rs 2 Lakhs and sold for Rs 1.5 Lakhs 

So the net income from the above transactions will be Rs 50,000 [Rs 1 lakhs (income from Transaction 1) – less 50,000 (loss in Transaction 2)] 

Tax on Crypto income for FY 2022-23: 30% of Rs 50,000 = Rs 15,000 (plus surcharge and cess).


3) 1% TDS on transfer of Crypto Assets  

The government has introduced TDS @ 1 % so that the government can keep track of who buys and sells virtual assets. This TDS is basically a deduction (not a charge) that can be claimed back by filling Income tax return if you continue to hold the assets at end of the year.


4) Crypto Taxation on any Gifts in the form of Virtual Assets

Any gifts made in the form of virtual assets will also be taxed. The recipient of the gift would be liable to pay tax at a flat rate of 30% (plus surcharge and cess). Gifting to your close relative which includes wife or children, is still not liable to tax.


5) Applicability of new tax regime.

The proposed income tax is applicable from 1st April 2022 and the TDS of 1% is applicable from 1st July 2022, to be effective from financial year FY 2022-23 onwards.



FAQs on Crypto Taxation

  • How will taxes work for Coin sets and Algos?

You will require to pay taxes @ of flat 30 % on the profits generated from Coin sets and Algos.

  • Will I have to pay taxes on my virtual digital assets?

Yes, you will have to pay taxes at the rate of 30% on virtual digital assets when you sell them for profit and transfer the amount to the bank account. Also, any payment transfer made related to digital assets transactions will be applicable for a TDS of 1%.

  • Will I be taxed even if I don't sell my crypto?

Suppose you buy crypto and then don't sell it. Even if the value of your crypto goes up, you will not be taxed until you actually sell your crypto. So this is the good news for holders.

  • I have been investing in virtual digital assets for a long period. Will my previous gains also be taxed and how?

Yes, the previous gains will also be taxed if the same are released on or after April 1, 2022. For example, if you sell your current holdings on or before March 31, 2022, the current system of taxation will apply on your gains. However, if you sell them on or after April 1, 2022, you will be subjected to a tax at 30% on gains arising from such transfers.  

  • Will long-term and short-term capital gains apply to virtual digital assets? 

No, there is no characterization difference between long-term and short-term in virtual digital assets. Every transaction regardless of the period of holding will be subject to income tax at a flat rate of 30%. 

  • If I have made a profit of 5 Lakh in one crypto investment, and a loss of 5 Lakh in another, my net profit and loss is 0. So will I still have to pay taxes? 

No. If in the same financial year, your net income from crypto transfers is NIL, you will not be subject to any tax. 



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