Cryptocurrency profits would be taxed at 30% starting in April, the same amount as lottery prizes in India. This includes Bitcoin and NFT income as “virtual digital assets.”
Cryptocurrency Classification under GST in India
The government is aiming to classify cryptocurrencies as a product or service under the GST statute, allowing taxation on the whole transaction value.
Currently, only crypto exchange services are subject to 18% GST and are classified as financial services.
Cryptos, by nature, are related to the lottery, casinos, betting, gambling, and horse racing, which all carry 28% GST on the whole value. Gold also attracts a 3% GST on the total transaction amount.
The Budget 2022–23 also suggested 1% TDS on payments for virtual currencies over Rs 10,000 per year and taxing them at the recipient’s discretion.
Individuals or HUFs who are obliged to have their accounts audited under the IT Act would be exempt from TDS up to Rs 50,000 per year.
The 1% TDS provisions will take effect on July 1, 2022, and the profits will be taxed on April 1.
Separately, the government is drafting cryptocurrency laws, although no draft has been made public yet.
Explanation of tax provisions for cryptocurrency through an example
To begin, 30 percent of all cryptocurrency revenues earned in a year will be taxed.
For example, if a person buys for $10,000 and sells for $12,000, he or she will have made $2,000 while paying $600 in taxes.
A person who acquired a cryptocurrency asset and has yet to sell it, even when its value has climbed significantly, has earned no money yet.
A part of a crypto asset holding that has not been realized will not be taxed until it is sold.
In the same way, if a person loses all of his or her crypto transactions for the year, there will be no tax to pay.