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Cryptocurrency tax and its Imposition in India 

  • September 23, 2022
  • 4 min read
Cryptocurrency tax and its Imposition in India 

In India, there is a 30% tax on cryptocurrency gains. The country classifies cryptocurrencies, non-fungible tokens (NFTs), and related objects as virtual digital assets (VDAs), which are subject to a strict taxation framework under the new system that went into effect on April 1 of this year. As with all taxes, this may appear to be a harsh measure at first, but it actually serves as a warning that can help users be cautious with their cryptocurrency investments and avoid putting all of their money in a highly volatile sector without a solid understanding, mainly due to promises of huge returns quickly.

Cryptocurrency taxes are also seen as a way to legitimate cryptocurrency assets in India without outright outlawing them, allowing dealers and investors to continue working with cryptocurrencies without too much concern.

Let’s first examine India’s taxation of cryptocurrency and how it compares to other nations.

How much tax is imposed in India on cryptocurrency gains?

Finance Minister Nirmala Sitharaman suggested a taxing strategy for VDAs during the Union Budget 2022–2023 meeting. An additional 30% tax will be applied to any gains from the selling of VDAs. There are no thresholds at which the VDA tax won’t be applied, it should be noted. This implies that the gains will be taxable even if the taxpayer’s total income is below the Rs 2.5 lakh level.

Additionally, a TDS of 1% will be applied to all VDA transactions, which will be subtracted by the cryptocurrency exchange before crediting or paying the seller.

How does India’s taxation stack up against those of other nations?

Cryptocurrencies are subject to capital gains tax in the US, the same taxation as equities. The federal tax rate on capital gains from cryptocurrencies ranges from 0% to 37%. Your capital gain, for instance, would be $20 if you invested $100 and cashed out at $120.

With a tax-free allowance of GBP 12,300, the UK has a capital gains tax system that is similar to that of the US.

There are some nations that are regarded as cryptocurrency tax havens. Bitcoin is not regarded as a currency, a commodity, or even a stock in Germany. It is regarded as a private fund. If you’ve had cryptocurrencies for more than a year, you can sell them tax-free, regardless of profit, and you won’t need to disclose them on your tax return.

Crypto tax in India

India’s tax system might appear a little looser in comparison to some other countries, but the country’s crypto tax might appear punitive in comparison to certain other countries. However, as it was perceived as a type of legitimization of digital assets by the Center, the news of a crypto tax in India was generally welcomed by crypto traders and investors in the nation. Indicative of India’s support for cryptocurrency is the government’s plans to shortly launch a central bank digital currency (CBDC) (for the time being).

Even if it is hefty, India’s crypto tax and crypto portfolio serve as a strong warning for regular investors who might not fully comprehend the enormous volatility of the entire crypto industry. The country’s general populace still lacks a thorough understanding of cryptos. Additionally, anyone with a functioning bank account and valid government identification can invest in cryptocurrencies quite easily thanks to the availability of exchanges and wallets on mobile apps and the straightforward KYC requirements. Therefore, it is thought that a strict cryptocurrency tax will encourage people to be cautious with their investments, read the small print, and comprehend the rewards expected before investing their money.

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