New Delhi: Since Finance Minister Nirmala Sitharaman announced a 30% tax on the transfer of digital assets and a 1% TDS at the time of sale, it has become a headache for investors. The step amused the crypto fraternity in India as they thought it would legalise cryptocurrency in the country.
However, Finance Secretary TV Somanathan on February 2 made it clear that RBI’s issued digital rupee will be the legal tender. ”Rest all are not legal tender, will not, will never become legal tender. Bitcoin, Ethereum, or any picture of Actor become NFT will never become a legal tender,” he added.
Digital currency will be backed by RBI which will never be default. Money will be of RBI but the nature will be digital. Digital rupee issued by RBI will be a legal tender. Rest all aren’t legal tender,will not,will never become legal tender:Finance Secy TV Somanathan
(File pic) pic.twitter.com/Cko0e4753X
— ANI (@ANI) February 2, 2022
Considering the concerns, we have explained the tax calculation on cryptocurrencies based on the latest government notification in Budget 2022.
Understand the tax with example:
-On July 1, 2022, you buy bitcoin of Rs 1 lakh. Its value drops to Rs 50,000 on August 1.
-On August 1, you withdraw money with a loss of Rs 50,000 to avoid further loss.
-You get Rs 49,500 instead of Rs 50,000 after the deduction of 1% tax at source. TDS is sure at the time of redemption.
-Now you decide to invest Rs 49,500 in Ethereum on August 1.
-Ethereum increase to Rs 80,000 on March 1, 2023. You again sell and received Rs 79,200 due to TDS.
On March 1, you don’t own any crypto holdings.
Now, Financial Year 2023 starts, and here is what you did with your crypto investments:
-On Bitcoins, you suffer a loss of Rs 50,000 and are charged Rs 500 as TDS. On Ethereum, you made a profit of Rs 30,500 and paid Rs 800 TDS. The total loss you suffered Rs 19,500 (-50,000 + 30,500).
-The total TDS you paid is Rs 1,300.
Notably, you made an overall loss in your crypto investments so you don’t need to pay tax. When you file tax returns for 2022-23, you are liable to get a refund of TDS of Rs 1,300 as you booked a loss of Rs 19,500.
Considering the success of Ethereum, you again decided to try your luck again on cryptocurrencies in FY 2024.
-On April 1, 2023, you buy Ethereum of Rs 1 lakh. On March 1, 2024, the value reaches Rs 1.4 lakh. To book profit, you sold it.
-You pay TDS of Rs 1,400 on 1.4 lakh. At the time of ITR filing for 2023-24, tax liability will include income from crypto investments.
-You incur a loss of Rs 20,500, after deducting a loss of Rs 19,500 from a profit of 40,000. The 30% tax on the income comes at Rs 6,150.
This is not only for crypto, this is for all speculative income. For example, if I take horse racing, that also attracts 30% tax. There is already a 30% tax on any speculative transaction. So we have decided to tax crypto at the same rate: Finance Secretary TV Somanathan
— ANI (@ANI) February 2, 2022
-Technically, the above-mentioned calculation of tax is right but the government’s rules say losses from virtual asset transactions can not be carried forward. On the other hand, you can set off your losses of businesses, mutual funds, and stocks.
