New tax rule for Cryptocurrency

Summary: Returns on Crypto Currency will be taxed as per the new rules. Explore how your returns will be taxed. Read on to know more.

05 Nov 2022 by Team FinFIRST

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The Indian government's initial response to cryptocurrencies was to approach the topic cautiously. However, the tremendous popularity and huge trading volumes garnered by crypto and virtual digital assets (VDAs) recently prompted the government to take action, resulting in the cryptocurrency tax laws, which clearly state the tax implications on digital asset management.

In Union Budget 2022, the Finance Minister announced the cryptocurrency tax in India at a flat rate of 30 percent on any income from the transfer of VDAs. Additionally, another section 194S dedicated to the treatment of Tax Deducted at Source (TDS) in the event of a transfer of a VDA was also announced.

Let's explore a few takeaways on TDS on VDAs and cryptocurrencies according to the new law.

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What is TDS?

TDS is a direct tax levied on all sorts of revenues, dividend incomes, or asset deals. It is an important source of revenue for the government. TDS is charged at the point of payment or the source itself if the payment exceeds a certain limit. TDS is regulated by the Central Board of Direct Taxes (CBDT) in India. The new tax law mandates that TDS shall apply to all eligible transactions related to VDAs from 1 July 2022.

What is the TDS on VDAs and Cryptocurrencies?

Any person buying VDAs or cryptocurrency must deduct a TDS of 1 percent of the total amount paid to the seller, according to section 194S of the Income Tax Act. The government has specified a certain limit, beyond which all transactions will attract TDS at the time of credit of the said payment.

In case of non-availability of the seller's PAN, the tax will be deducted at source (TDS) at 20%.
If the individual has not filed their prior year’s IT return and the aggregate of TDS and TCS of that year is more than Rs 50,000/-, TDS will be charged at 5%.

When will the transfer of VDAs and Cryptocurrencies attract TDS?

Here are the conditions under which taxes CBDT will apply (that is, TDS on VDAs).

The total amount of transfer of VDAs by the specified person during the financial year exceeds Rs 50,000.
The total amount of transfer of VDAs by anyone other than the specified person during the financial year crosses Rs 10,000.

Who is a specified person?

Here is the definition of 'specified person' as per the cryptocurrency tax laws.

An individual or Hindu Undivided Family (HUF) that has no income under the head profit and gains from business or profession
An individual or HUF having income under the head profit and gains from business or profession whose
- Total sales/receipts/turnover from business is not more than Rs 1 crore in the financial year immediately preceding the financial year in which the VDA is transferred
- Total income from profession is not more than Rs 50 lakh in the financial year immediately preceding the financial year in which the VDA is transferred

Conclusion

The government's primary objective for enabling the cryptocurrency tax in India is to bring about regulation in the crypto market that will deter casual investors from dabbling in the field without the required knowledge or research. Besides, by introducing TDS on every transaction beyond a certain limit, the government can keep track of every crypto or VDA transaction and maintain records of the same.

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