Cryptocurrency is money that cannot be physically touched or seen but may be exchanged digitally instead of physically. There is no government intervention in this kind of money, and users are free to trade and preserve the cash as much as they want without fear of the authorities. All records of transactions are kept indefinitely in the units referred as the Blockchain. Bitcoin, Litecoin, and Dogecoin are just a few of the cryptocurrencies in circulation.
But did you know that every nation is required to pay a certain amount of tax for trading online as well? Indeed, this is correct. The government of India has also adopted this taxing policy. So, let’s attempt to understand what these crypto taxes are, when you’re required to pay taxes on cryptocurrency and what the current rate of taxation is in further detail.
The Imposition Of Taxes On Cryptocurrency
The Union Budget for 2021-22 included a statement from Finance Minister Nirmala Sitharaman outlining the taxes on cryptocurrency in India. She also advocated persons who transfer any digital asset from one person to another be required to pay a tax of 30% on any money received in exchange for doing so.
The Legal Value That Cryptocurrency Hold In India
Because the exchange of cryptocurrencies needs no participation of a third party, the Indian government has not enacted any legal tender to recognize cryptocurrencies as legitimate financial instruments.
Taxes On Cryptocurrency Applicable In India
Even though the Government of India has not issued any notification certifying the legality of cryptocurrencies, the Reserve Bank of India has imposed taxes on cryptocurrency.
Whether you are an investor or a cryptocurrency trader, if you make a profit from the sale of your cryptocurrencies, you will be required to pay income tax to the government.
Investors must continue to pay taxes on cryptocurrency to the government until it promulgates further notice. The calculation of taxes on cryptocurrencies depends on the kind of transaction undertaken.
When You Have To Pay Taxes On Cryptocurrency
In a recent announcement, Nirmala Sitharaman said that the taxes policy on digital assets would become effective on April 1, 2022.
There are taxes you should pay and taxes you should not pay.
The government created specific laws to assess whether cryptocurrency transactions should be subject to taxation. They are as follows.
1. Bitcoin is subject to taxation.
2. There are specific open Blockchain tokens, such as the Wrapped Asset Token, subject to taxation.
3. Currencies such as Filecoin, for example, are subject to taxation.
4. NFTs are taxed.
5. Cryptocurrency lending and borrowing are subject to taxation.
6. Ether, a public Blockchain token, and as such, it is subject to taxes.
These all are subject to a 30 percent withholding tax on any revenue generated by the transfer of digital assets such as cryptocurrency.
Computation Of The Taxes On Cryptocurrency
You must pay tax on the money produced by your cryptocurrency from your profit section. It is decided after subtracting the cost of acquisition, which is the price paid for any cryptocurrency exchange, from your profit section.
When you gain some quantity of free cryptocurrency through earning from various games or participating in other schemes, those are regarded as a present for you. Following is an excerpt from the Indian tax laws now in effect:
If you get money in the form of cryptocurrencies as a present from relatives or anybody else, the amount of money received is not taxable. Similarly, if you get cash from a buddy, the money is considered a gift for you and is thus not taxed.
Another condition that needs addressing is that if the amount of money you give as a gift during a Financial Year is less than 50,000, it will not be subject to taxes. However, if the amount is more, it will be subject to taxation.
Money received on your wedding day is not taxed, but the money accepted on your birthday or anniversary is taxable. It is taxable if you get cash on your birthday or your anniversary.
Consequently, after reading the terms and conditions listed above, it is more apparent to understand when you are liable to pay taxes on crypto.
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Additional Conditions For Paying Taxes
Consider the following scenario. You purchased crypto. However, you did not sell it. If the value of that cryptocurrency increases, but you have not sold it by the time the increase occurs, you will not be subject to taxation.
Is it necessary to pay taxes on cryptocurrency even if we have suffered losses in selling them?
The answer is a resounding nay. If you make a loss while selling your cryptocurrencies, you will not be required to pay taxes since there will be no profit for you.
The Indian government has introduced a program under which you would only need to pay taxes on your profits rather than the principal amount you have traded.
If you make a profit in the stock market but suffer a loss in cryptocurrency, you will not be able to deduct your losses. Both systems have a separate system of taxing. It is essential to note.
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In the end, though, if you experience losses, you will not be subject to taxes.
As we all know, the taxation rate in India is 30 percent, but how will you include the taxation by deducting TDS in your calculations?
According to the official website, the Government of India has determined that a TDS of one percent would be applied to crypto transactions, and this will become effective on July 1, 2022. It will guarantee that the appropriate authorities in the country will have the Cryptocurrency transactions data.
Some people are liable to this TDS deduction if the amount of cryptocurrency they earn in a year exceeds Rs 50,000. Some professionals make more than 50 lakhs rupees in a single calendar year.
In the case of other individuals, this TDS regulation may apply if the total value of their cryptocurrency transactions in a financial year exceeds Rs. 10,000.
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