Cryptocurrencies have progressed from uncertain speculative products to virtual digital assets (VDA), but it has taken a long time to gain acceptance from both developing and developed countries.
The Honorable Finance Minister announced the digital currency during the Union Budget for the fiscal year 2022-23. She also declared a 30% tax on virtual digital assets (VDA). This taxation would also extend to the gifting of virtual currencies and digital assets to some other people without any exemption.
This is broadly consistent with the Indian government’s plans to create a legal digital currency while prohibiting the use of private virtual currencies like Bitcoin or Ethereum etc.
It is worth noting that Union Finance Minister Nirmala Sitharaman has also stated that taxing virtual digital assets (VDA) transaction records does not give them credibility or legitimacy.
Understanding India’s Crypto Tax
Prior to digging deeper into the crypto taxation laws in other countries, it is crucial to know how crypto taxation works throughout India. In India, profits generated from the transfer of VDAs as well as NFTs are taxed at 30%.
According to Ld. Advocate Ishan Kapoor, who works as a crypto tax lawyer in Mumbai, current tax laws in India permit taxpayers to deduct long-term economic losses from long-term capital gains. Taxpayers cannot offset the loss from a VDA with income generated from another VDA that is not permissible.
Ld. Advocate Kapoor also explained that if you earned a profit from a Bitcoin transfer but lost money from an Ethereum transfer, you cannot deduct the loss from the Ethereum transfer from the profit or economic gain from the Bitcoin transfer because that is how cryptocurrency taxation works.
It is pertinent to mention here that economic losses arising out of virtual currency transfers cannot be carried forward to the next fiscal year, which means that economic losses from the transfer of virtual currencies cannot be counterbalanced against future profits or financial gains in the following fiscal year.
Scenarios of taxation of cryptocurrencies in other countries
VDAs are considered just like equities or stocks in the United States. Every loss from the transfer of VDAs can be used to compensate for the payment of income tax up to $3000, and any additional deficits or losses can also be decided to carry forward to the next fiscal year to compensate for any future benefits.
Short-term capital gains are taxed at the prime rate, which is based on the investor’s taxable income, whereas long-term capital gains for VDAs held for more than twelve months are taxed at often reduced rates—0%, 15%, and 20%.
VDAs are considered equal to stocks in the United Kingdom also. If you purchase and sell a VDA for a personal investment, you must pay income tax on the profit made on the sale of the VDA. In the United Kingdom, losses arising from the transfer of VDAs can be deducted from total investment income or capital gains.
Meanwhile, some countries, such as El Salvador, have made Bitcoin a legal currency. The country has even proposed the formation and establishment of a Bitcoin city for its citizens, where all transactions will be conducted in Bitcoin and thus will be exempt from any property as well as capital gains taxes.