How to calculate tax on your crypto assets from this year?

The Indian crypto industry has had its own share of ups and downs over the last few years. Even after the reversal of the banking ban on cryptos by the Supreme court of India, the industry struggles to get banking access.

The industry has been actively lobbying for positive regulations. Budget 2022 did not directly provide any indication of regulatory clarity. However, it did introduce a new scheme of taxation on crypto. Section 115BBH was introduced to tax all gains from the transfer of virtual digital assets (VDAs) at 30% without allowing any deduction for expenses nor setoff of any loss. Further, Section 194S was introduced to deduct TDS at 1% on all transfers of VDAs with an intention to widen the tax base.

These provisions are applicable from the financial year 2022-23 (FY23).

Calculating taxes on cryptos for FY23
There can be various incomes that an investor receives in cryptos like salary, consulting, capital gains and lending etc. Budget 2022 did not explicitly clarify the taxation of these incomes, hence a conclusion has to be drawn by interpreting the existing provisions.

Tax on salary received in cryptos
Since many Indians are involved with various crypto projects as employees, it is pretty common to receive remuneration in cryptos. In case an employee receives salary in cryptos, the fair market value of the crypto received in Indian rupees will be the taxable amount of salary. This income will be taxed as income from salary at applicable slab rates.

Tax on crypto gains
Gains made by trading in cryptocurrencies will now be taxed at a rate of 30% on profits without any deduction for any expenses other than the cost of purchase. Additionally, losses in one crypto transaction cannot be set off with gains in another crypto transaction. So from FY23, crypto gains will be taxed at a flat rate without any concession based on the holding period. An investor will need to have a proactive and cautious approach while trading crypto assets since tax may become due even when the trader has a net loss on a total basis.

Tax on lending income
Lending of crypto assets is very popular among investors who are looking to hold assets for the long term. If an investor has lent his crypto assets and is earning a yield on it, the interest will be taxed at the time of actual receipt based on the value of tokens in Indian rupees as income from other sources and taxed at applicable slab rates for individuals.

Although clarity on taxation of crypto assets is a welcome move, the industry still awaits consensus and proper regulation on cryptos. The government has been saying repeatedly that crypto is not legal, mirroring the concerns raised by the RBI. It will be a difficult few years for the Indian crypto community to cope with a harsh tax regime and restricted banking access.

(The author is the founder & CEO KoinX. Views expressed are personal.)

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