Both investors and regulators expressed confusion and uncertainty regarding India’s cryptocurrency taxation policies until 2022 when for the first time Government of India introduced a tax on cryptocurrency in India for the transfer of Virtual Digital Assets (which covers cryptocurrencies and any forms of Non-Fungible Tokens aka NFTs) in the Annual Budget for the year 2022-23. Before this, cryptocurrency was neither completely prohibited nor officially recognized as legal tender in India.
Different viewpoints on how cryptocurrency transactions should be taxed resulted from the absence of clear regulations. While some claimed that cryptocurrencies ought to be treated as commodities and taxed accordingly, others thought they ought to be covered by capital gains tax. Confusion was further increased by conflicting statements made by government representatives regarding the legitimacy of cryptocurrencies. Due to the ambiguous tax laws, many investors were reluctant to invest in cryptocurrencies, but some still do so at their own risk. It was unclear how the Indian government would decide to regulate and charge taxes on cryptocurrencies in the future.
The confusion has undoubtedly settled a lot in the one-year time frame now, with awareness around the taxation policies and with the government launching its own form of cryptocurrency called Central Bank Digital Currency (CBDC). But there is still a lot of confusion around what crypto activities will be taxable and which will not. Therefore, today in this article we are going to discuss all such crypto activities and will break them down for you in the simplest possible term, so hold on to this article to find out about it.
Which activities will be taxed under the new amendments to the Virtual Digital Assets Taxation Scheme?
To be specific about the activities that will be taxed under the new amendments to Section 115BB (H) of the Virtual Digital Assets Taxation Scheme, there are three activities listed.
Selling your Cryptocurrencies
In the case of selling your cryptocurrencies and converting them to INR by transferring them to your bank accounts, you will have to pay a flat 30% tax on the net gains of a crypto coin, a surcharge (if applicable), a cess of 4% and a cryptocurrency tds of 1% on the total amount for transactions above ₹50,000/-.
Trading a Cryptocurrency to buy another Cryptocurrency
TDS will be charged for using a cryptocurrency to buy another cryptocurrency.
Using Cryptocurrencies to buy Goods and Services
Buying any forms of goods and services shall be taxed accordingly if cryptocurrencies are used to avail or buy them.
Manually calculating the taxes and arranging them can be a very difficult job, and may lead to a large number of errors in calculations. To simplify this herculean task of calculating taxes, you can use Binocs. Binocs automates the process of calculating the tax obligations on your crypto transactions and then downloading a detailed report of it. Binocs is a very efficient tool that helps you to bring all your crypto transactions from various portfolios under one umbrella.
