From 1st April 2022, flat 30% tax has been levied on the sale of cryptos in India.
All crypto currencies, including Bitcoin, Etherium, and other digital assets, as well as non-fiat currencies (NFTs), are included in the definition of virtual digital assets, which was established in Budget 2022.
· Income Tax on Sale Of Crypto
Gains from all Virtual Digital Assets are subject to a fixed rate of 30% tax, therefore gains from crypto currencies like Bitcoin, Etherium and likewise are also subject to this rate. Additionally, income would be taxed under the heading Other Sources and not as Capital Gains.
The sale of any crypto currency may result in losses, and those losses may not be offset by crypto gains or gain from any other form of income, including business income, capital gains, etc., but losses from other sources can be set-off with Crypto gains. Even carrying over crypto losses to the following year would not be permitted.
Let’s say I trade in bitcoins and make a profit of Rs. 7,00,000 in the month of June, but I lose Rs. 4,00,000 when I sell another bitcoin deal in the month of July. As a result, I only actually gain Rs. 3 lakh. However, my income will be counted as Rs. 7 Lakhs rather than Rs. 3 Lakh for income tax purposes, and a 30% tax will be added to that amount. The tax owed in this instance would be 30% of 7 Lakhs, or Rs. 2.10 Lakhs. To Sum up, a loss on the sale of one crypto currency cannot even be offset by a gain on the sale of another.
· TDS on Sale Of Crypto
Many people traded in cryptocurrencies without paying taxes on their earnings. The government has instituted TDS on such transactions to ensure that there is no tax avoidance. Tax Deducted at Source, or TDS, of 1%, will also be applied starting on April 1, 2022, on the sale of any virtual digital assets such as NFTs and cryptocurrencies. It would be necessary to deduct this 1% TDS in accordance with Section 194S from the Sale Price rather than the Capital Gain.
The person would be entitled to claim credit for this 1% TDS that has already been deducted while filing the ITR.
Regardless of whether the crypto currency is sold for a profit or a loss, this TDS will still be applicable. Although this may block working capital, particularly for active dealers, it will also guarantee that the government has all the information and can simply find out tax evaders.
The aforementioned taxes would be assessed when an asset was sold rather than when money was taken out of a bank account. As a result, tax would still need to be paid in the year in which crypto currency was sold rather than the year the money was withdrawn from bank account if a person sold their crypto currency but did not withdraw the proceeds from bank account.
Even if someone exchanged one cryptocurrency for another, this would still be regarded as a sale and a bartering transaction. Despite the fact that INR has not been received in this instance, but Crypto has been sold, it would be regarded as a case of sale. Even if the cryptocurrency is sold on a foreign exchange, the same rule would still be in effect. Everyone who resides in India is subject to this regulation, although NRIs, entities outside India, and sale of cryptocurrency by foreign entities are exempt.
The GST Regulations do not currently provide a particular provision for virtual assets. According to sources, the GST Council has established a committee that will shortly discuss the idea to impose 28% GST on all crypto-related goods and services. In addition to the current tax of 30%, this would be charged. The government is working to clarify the application of the goods and services tax (GST) on cryptocurrency assets soon after taxing the income from virtual digital assets. However, the government has not yet imposed GST on cryptocurrency transactions.
In India, there is harsh taxation on cryptocurrencies, NFTs, and other Virtual Digital Assets. The tax laws are much stricter because losses and costs cannot be offset. Everyone who resides in India is subject to this rule, however NRIs and businesses registered outside of India are exempt.
Without the requirement to live in Dubai, entities can be founded there from India. Many active Indian cryptocurrency dealers have started registering entities outside of India in tax havens like Dubai while residing in India where there are no taxes in order to avoid paying such punitive taxes. They conduct business through their foreign firms, and no tax is levied in India.The Income Tax Act further states in Section 6 that even if the foreign entity's owners live in India, the Place of Effective Management Rules does not apply and the Indian government cannot levy tax on the foreign business if its annual turnover is less than Rs. 50 Cr. Many people are using this Section to incorporate corporations outside of India in locations like Dubai, saving a sizable amount of taxes in the process. They are registering businesses outside of India not only to avoid paying taxes on their cryptocurrency income but also on any commercial income they may be receiving from other sources.