Taxes on Cryptocurrency
INTRODUCTION
A cryptocurrency is a form of digital asset based on a network that is distributed across a large number of computers. This decentralized structure allows them to exist outside the control of governments and central authorities.
The advantages of cryptocurrencies include cheaper and faster money transfers and decentralized systems that do not collapse at a single point of failure.
The disadvantages of cryptocurrencies include their price volatility, high energy consumption for mining activities, and use in criminal activities.
TAX ON CRYPTOCURRENCY
The major takeaway for taxpayers from Budget 2022 was the decision on crypto taxation. Gains from the transfer of Virtual Digital Assets (VDA), such as cryptocurrencies, NFT, and others, will be taxed at a 30% rate, according to the Budget.
For taxpayers and cryptocurrency enthusiasts, this was a bittersweet occasion. Sweet since it dispelled a lot of the obscurity surrounding crypto taxes. Bitter because...well, a 30% tax is, to put it mildly, hefty.
While the Budget did provide some much-needed clarification on cryptocurrency taxation, it only addressed one aspect of the problem. The judgement on other crypto-related operations is still up in the air. For example, it is currently unclear how other activities such as Crypto Derivatives Trading and Crypto Skating would be taxed.
However, it appears that the government is preparing to crack down on crypto-related activity as well. Take, for instance, cryptocurrency exchange sites.
Rajya Sabha Member Sushil Modi has said that the government levies 18 % GST “only on service provided by the crypto exchange and is treating it as financial services.” However, in his opinion, cryptos are akin to gambling and betting and hence it should be treated similarly by imposing a 28% GST on the entire transaction of crypto.
The government is also considering levying a tax on cryptocurrency mining. Mining is the process of creating new cryptocurrencies and putting them into circulation. Infrastructure costs incurred in mining cryptocurrencies, for example computers and electricity, cannot be deducted from the income as it will be considered capex.
Cynicism about bitcoin appears to be pervasive among our country's political and economic elites. T Rabi Sankar, the Deputy Governor of the Reserve Bank of India, feels that cryptocurrency can destabilize the banking system and undercut monetary policy, and has called for a complete ban on cryptos.
The high taxes is clearly intended to deter people from using cryptocurrencies.
SET OFF or NOT
Cryptocurrency investors will not be able to offset gains from one cryptocurrency against losses from another. This simply means, if you bought and sold two cryptocurrencies, for example, Bitcoin and Ethereum, and suffered a loss of Rs 10,000 on Bitcoin but gains of Rs 10,000 on Ethereum, your taxable income will still be Rs 10,000. In many other cases, profit and losses from the same source of assets are allowed to be set off.
Looking at our portfolio, all we can say is at least *we don’t have to pay taxes as long as we are in losses.*😢
REFERENCES
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