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How cryptocurrency gets taxed in India

The flights of technology seem difficult to comprehend, but with government anchors like taxation grounding it, they take on their inspiring wings with disciplined and guarded objectives!


Cryptocurrencies started on a slipshod note corresponding to uncertainty. Yet they soon took on the momentum of the world. The incredible popularity and massive trading magnitudes gathered by crypto and other Virtual Digital Assets prompted the government to take action, resulting in the cryptocurrency tax laws paving the way for clarity in 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.


For better understanding, let's unpack the term "virtual digital asset" (VDA):


"Virtual Digital Asset" (VDA) is a term that refers to digital assets that exist in a virtual world or online platform. These assets can include virtual currencies, virtual goods, virtual property, and other types of virtual assets. Some of the popular examples of VDAs are Bitcoin, Ethereum, Dogecoin, virtual collectibles, the newly launched E rupee by the Government of India, and NFT.


Let us learn about TDS on VDAs, shall we?


According to section 194S of the Income Tax Act, 1961, any purchaser buying Virtual digital assets (VDAs) or cryptocurrency must deduct a TDS of 1 percent of the total amount paid to the seller (resident Indian).


Please note that the government has specified a limit. Beyond this, all transactions will be held liable to TDS at the time of credit of the said payment.


Below are the scenarios to keep in my mind:


1) The tax will get deducted at source (TDS) at 20% in case of non-availability of the seller's PAN.

2) TDS will get charged at 5% if the individual has not filed their prior year’s, IT returns and the aggregate of TDS and TCS of that year is more than Rs 50,000.


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


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

2) The total amount of transfer of VDAs by the specified person during the financial year exceeds Rs 50,000.


Conclusion

For the longest time, the expansion of digital technology in payment, investment, and other monetary transactions deepened an uncertain absence of regulations, bringing numerous challenges to the fore.


Regulating cryptocurrencies and virtual digital assets has proved even more challenging since the creation and trading of these assets occur outside the country. With an all-time rise of speculative trading and fraudulent fallouts, it was time the government of India took fiscal measures to control the spins and whirls of speculation.


By introducing TDS on every transaction beyond a limit, the government can maintain track records of every crypto or VDA transaction. With cryptocurrency tax, the government has brought about regulation in the crypto market that will prevent casual investors from being impetuous in the field without the required knowledge or examination.


“We have an opportunity to reform the financial system, to turn it into the public utility that it’s supposed to be—a level playing field that everyone can indiscriminately use in their bid to get ahead. Let that be the standard for the coming age of cryptocurrency.”


― Paul Vigna, The Age of Cryptocurrency: How Bitcoin and Digital Money Are Challenging the Global Economic Order


Regardless of how fast the socio-economical and financial spectrums might evolve, I promise you that TaxBuddy will keep you ahead of the curve, aligned with the pace of advancements, equipped, and well-assisted on taxation.

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