Recently, Finance Minister Nirmala Sitharaman,
had announced that a 30% tax will be levied on gains from Virtual Digital Assets (VDA) like bitcoin, NFTs and cryptocurrencies from April 1. The tax rate on stock trading can range from 0-15% depending on how it is filed. The crypto investors need to be aware of the other legalities apart from the taxation slab which is at par with the lottery winnings.
India has more than 10 million crypto investors
India has more than 10 million crypto investors with about 100 billion trading volume. As per the new rule, if a person buys a currency at Rs 10000 and sells at Rs 12000, an amount of Rs 600 will be taxed for the Rs 2000 profit. Imagine, a person who has bought a crypto asset that increased in value greatly, but is yet to sell it, by definition that person has made no profits yet. Such crypto asset holdings will not qualify for tax until some portion of it is sold. After accounting for all crypto transactions made across the year, if one is in loss overall with no profits made, there will be no tax to pay.
However, a 1% TDS would be redeemed from the crypto transaction irrespective of profit or loss. Suppose, you bought Bitcoin worth ₹40,000 and sold it at the same price making no profit, you would get back only ₹39,600. If you invest the same ₹ 39,600 into buying Ethereum or NFTs and again sell at no profit, you would again lose 1% to TDS and get back only ₹39,204.
This TDS collected can be set off against the total income tax owed at the end of the year. Investors who make almost zero profits overall due to market movements will be left with only 50% of what they started with by their 69th trade, and only 25% by their 138th trade.
Minister of State for Finance Pankaj Chaudhary said in the Lok Sabha on March 21 that losses incurred from one kind of virtual digital assets (VDAs) cannot be set off against the gains from any transaction involving another VDA while computing tax. As per the provisions of the proposed section 115BBH to the Income Tax Act, 1961, loss from the transfer of VDA will not be set off against the income arising from the transfer of another VDA.
The industry views this as a move that is ‘detrimental’ to investor sentiment and may discourage people from making further investments. Negative reviews pour in as it puts the burden of losses on investors while the government will continue to earn revenue from the heavy taxes.
With high costs on one side and a steep tax rate on the gains on the other, mining too will become a less attractive proposition in the country. However, India made up a very small share of crypto mining globally.
Requests have been made by the cryptocurrency industry to the Indian government to reconsider and grant relief of the 1% TDA as that renders a hindrance to the potential creditworthiness of Crypto assets.
