Emerging Trends in the Evolving World of Cryptocurrency

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Cryptocurrency in India

The announcement of the budget has sparked conversations about cryptocurrency all over the internet, with many people claiming that it has now been legalized in India. This, however, is not quite accurate. What the recent budget has included is a new regulation requiring a 30% tax to be paid on cryptocurrency.

Taxation on Cryptocurrency

Despite the rumors that are circulating, India’s Union Finance Minister, Nirmala Sitharaman, did not declare that cryptocurrency has become legal. What she did mention is that a 30% tax will be required for cryptocurrency.

So, despite the conversation around it, the fact is that while cryptocurrency is not strictly legal, it is also not illegal. It’s somewhat of a gray area, with the government seeking to regulate and tax it rather than ban it outright.

Crypto as an Asset Class

In her announcement, Sitharaman made it clear that the only legally recognized currency in India is that issued by the Reserve Bank of India (RBI). This means the RBI is going to introduce its own digital currency, and this will be the only officially recognized virtual currency in the country. Any other types of virtual currency, such as Bitcoin or Ethereum, will fall under the category of asset class, rather than currency.

Understanding the New Tax Rules

The new tax rules on cryptocurrency are not as straightforward as some might think. Prior to this, we had two types of capital gain tax – long-term capital gain tax and short-term capital gain tax. In terms of stocks, anything held for more than a year was considered a long-term gain, and anything held for less time was short-term.

Now, cryptocurrency has shaken up these rules. For crypto, long-term is now considered to be anything held for more than two years. Short term is anything less.

So, for those who have held on to Bitcoin or Ethereum for two years, whatever gain they have will be taxed at 20%. For short-term gains, the tax rate is 30%.

Tax on Every Transaction

Remember, the new tax rule applies to every transaction related to cryptocurrency. Whether you’ve bought a new set of Bitcoin or gifted some to a friend, all will be taxed.

One thing worth noting is that if you gift someone cryptocurrency, the receiver will also need to pay the tax. So, let’s say you gift your friend a cryptocurrency worth ₹1 lakh, your friend will have to pay a 30% tax on it, which amounts to ₹30,000.

Understanding TDS: Tax Deducted at Source

Along with regular tax, the new law also introduces Tax Deducted at Source (TDS) on cryptocurrency. TDS is the tax deducted while making a payment. In this case, whenever you withdraw your cryptocurrency from your digital wallet to a bank account, the cryptocurrency exchange will deduct 1% as TDS.

Here’s the good news for you: the 1% TDS that is deducted by your exchange can potentially be refunded when you file your Income Tax Return (ITR). The government’s strategy with this law is to increase the filing of ITRs, compelling every person who trades in crypto to file ITR.

Conclusion

To sum up, the Indian government has neither declared cryptocurrency illegal nor legal in the recent budget. However, a 30% tax has been imposed on all cryptocurrency transactions. Whether you’re cashing in big on your Bitcoin investment or gifting a close friend some cryptocurrency, you will have to pay tax. Further, the government will apply 1% TDS on all withdrawals from the crypto exchange, a part of which can be refunded after ITR filing. So, while the world of cryptocurrency may seem a little more daunting under these new regulations, it also stands on a more legitimate footing, at least from a taxation perspective. If you are interested in exploring the dynamic world of cryptocurrency further, CoinDCX, a partner of this article, provides a platform where you could start experiencing the world of Cryptocurrency.

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About the Author: Mike Izzo

49 Comments

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  2. Hi sir I am amruth
    Sir I have worldcoin app from that I was collecting grants around 500 dollars in worldcoin app
    After that to withdraw it I used binance for withdrawal money through p2p I have withdrawl the amount sucessfully in binance now wheather should I pay the tax of 30% for withdrawal or not sir pls reply
    Anyone knows about it pls reply

  3. Sir agr limit order place krte h or fr usko cancel kr de to jo uska tax deduct hoga wo refund nhi hoga? Eg. 3000 ki payment pr 3015 rs Ige to wo 15 order cancel krne p refund hga?

  4. 2022 to 2023 one year me mera income 2 lacks cryptocurrency me but other side income 0 he 5lacks cross nahi kiya toh muje tax dena parega?

    Please reply 🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏

  5. Suppose i have invested 1lac in april 2021 and it becomes 1.70lacs in oct 2021, and i invested that 1.7lacs again in some come but if it becomes 70k in march 2022, is tax applicable on me as i gained profit and loss in 1 financial year

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