Bhoomika Singh
The new fiscal year 2022-23 will begin on April 1st, 2022, with many changes and new bills incorporated into the taxation system as part of the Union budget 2022. This fiscal year includes new income tax rules as well as a 30 per cent tax on capital gains on all virtual digital assets (VDAs), as well as a 1 per cent TDS on all transactions, dubbed the ‘Crypto Tax’.
The Lok Sabha passed the Finance Bill 2022 last week, instituting a tax on VDAs or cryptocurrencies beginning April 1. Finance Minister announced that any income derived from the transfer of virtual assets would be taxed at a rate of 30 per cent. The new bill also states that any losses incurred as a result of crypto transfers will not be allowed to be offset against the transfer of any other digital asset.
While passing the new bill in the Lok Sabha, FM stated that the Crypto Tax was brought up because there are a lot of transactions in that space. A lot of money is being transferred and generated via virtual digital assets, and hence, “We are in the process of consultation and till it is concluded, we are taxing the virtual assets also,” she added.
The crypto bill also imposes a 1 per cent Tax Deducted at Source (TDS) on all the transactions happening in the cryptocurrency ecosystem. “To capture transaction details, the minister also stated that government would make the provision for a TDS at the rate of 1 per cent of the consideration paid in relation to the transfer of virtual digital assets,” says Amit Gupta, MD, SAG Infotech, addressing the new tax.
The government has set a Rs 50,000 per year threshold limit for TDS for specified persons including individuals/HUFs who are required to get their accounts audited under the income tax (IT) Act.
At the same time, crypto industry experts state, Indian investors cannot offset the losses arising from one crypto exchange against the profits from others.
“This means, even if you make a loss in one asset, you have to pay taxes on the gains on others. The new regime of flat 30 per cent taxation on income from crypto assets from April 1, 2022, will ebb the sentiments for the new age asset class. Though, we hope that the crypto investors will back their investment thesis and stay in with the investment for longer periods,” comments Kunal Jagdale, Founder of BitsAir Exchange.
“On the other hand, Indian exchanges are still awaiting more clarity around the GST structure for crypto-assets and we are hopeful that the regulators will soon come up with an investor-friendly GST mechanism,” Jagdale adds.
The new cryptocurrency tax regime also covers miners who deal in mining the currency, commenting on how it affects those transactions, Manoj Dalmia, founder, Proaasetz Exchange says, “This tax bill even covers miners as no expenses of setting up mining are allowed as a deduction. Therefore mining transaction cost of purchase will be Zero. What can be set-off is only the cost of acquisition/purchase on VDA. My conclusion is, only profit will be taxed flat 30 per cent without any set off on losses and other costs if mining is included. The only cost of acquisition/purchase on VDA will be considered,”
IT dept prepares to tax profits made on crypto transactions
The Income Tax Department will keep a close eye on every transaction on crypto exchanges, as per the directives by the Central Board of Direct Taxes (CBDT), an apex body of the income tax department, officials told ANI.
A senior Finance Ministry official said, “Our officers will keep a close eye on the Cryptocurrency exchanges which are around 40 in number where transactions in major coins like Bitcoin, Etherium are going on.”
Officials told ANI that out of 40 cryptocurrency exchanges 10 are majorly dealing in the sale and purchase of cryptocurrencies and their turnover is between Rs 34,000 crore to Rs 1 trillion.
The official said other than crypto exchanges IT sleuths will also track the crypto transaction through reporting entities.
The new tax regime of cryptocurrency will fall under section 285BA and sub section (k) of IT Act. Where under rule 114 E, persons are required to report the prescribed financial statements in the statement of financial transactions (SFT), any person who is liable for audit under section 44AB (Like Individuals, HUF, firms, etc.).
The official said that by July 1, 2022, when the department will start deducting 1 per cent Tax Deducted at Source (TDS) on crypto transactions, it will become easier for the department to track crypto transactions.
On February 2 JB Mohapatra, Chairman, Central Board of Direct Taxes (CBDT), in an interview to ANI said that tracking and tracing these crypto investors is very difficult. The TDS provision will now help in tracking and tracing the people who are in this business and making profits but are not filing it in their income tax returns.
Other than tracing through TDS they can be tracked through reporting entities. The imposition of 30 per cent tax on proceeds of digital assets, as announced in the Union Budget 2022-23, will lead to huge tax collections as the turnover of the top 10 crypto exchanges in the country is around Rs 1 trillion, said Mohapatra.
Mohapatra said, “During our pilot project on crypto we found that they are operating on four models.”
“People are trading in crypto but they are not filing it in their income tax returns. Those crypto traders filing their income tax returns have no indication of crypto trading. The third model, we found that there are details of crypto trading but their estimates of stock sale and purchase or cryptos are wrong.
“The fourth model shows the details of crypto profits in their income tax return but they show it as income from other sources, income from capital gains, or income from the business. In suspicious cases, income tax returns were not filed. This is very problematic for us,” the CBDT chairman said.
