Explained: How to calculate tax on income from cryptocurrency

The 30% plus applicable cesses and surcharge of 15% on income above Rs 50 lakh will have to be paid on income from cryptocurrencies

After years of uncertainty, India took its first real step towards adopting cryptocurrencies. Finance Minister Nirmala Sitharaman, in her fourth Budget speech, announced a hefty 30 per cent tax on the income from digital assets which include cryptocurrencies.

Well, this could be seen as a relief to a lot of investors as the government took a step towards recognising the crypto-asset ecosystem. However, Sitharaman mentioned that the imposition of tax on digital assets didn’t mean they have been legalised.

The clarity over the legality of cryptocurrency, which has boomed among India’s millennials, would come through the upcoming bill to regulate virtual digital assets that will be tabled in the ongoing Budget session.

Also Read | Crypto not illegal, will be taxed like gambling win, says Finance Secy

Most importantly, since Budget 2022 has included a separate column in the Income-tax return form for making disclosures on gains made from cryptocurrencies and paying taxes, many investors are perplexed as to how one must calculate crypto taxes.

How to calculate crypto taxes:

The government will from April 1 charge a 30 per cent tax plus cess and surcharges on such transactions in the same manner as it treats winnings from horse races or other speculative transactions.

The 30 per cent plus applicable cesses and surcharge of 15 per cent on income above Rs 50 lakh will have to be paid on income from cryptocurrencies.

Also read: Budget 2022: India to tax cryptocurrencies at 30%

“Flat 30 per cent tax will apply on profit from transfer or sale of digital assets including crypto and NFTs from next financial year (FY 2022-23). Investors should also keep in mind that crypto losses can’t be set off or carried forward”, Balwant Jain, Tax and Investment expert told Financial Express.

Rishi Anand, Partner, DSK Legal, another expert quoted by the newspaper, said, “The statement essentially implies that an additional taxable income source has been recognised – which is income arising from transfer of any virtual digital asset (VDA). By way of example, if the total taxable income of an assessee is Rs. 1,00,000, of which Rs. 20,000 is the income from transfer of VDA: Rs. 6,000 will be amount of income tax on this (@ 30 per cent), and Rs. 80,000 will be subject to such other applicable slab rate, depending on the source of income.”

The Budget 2022-23 also proposed a 1 per cent TDS on payments towards virtual currencies beyond Rs 10,000 in a year and taxation of such gifts in the hands of the recipient. The threshold limit for TDS would be Rs 50,000 a year for specified persons, which include individuals/HUFs who are required to get their accounts audited under the I-T Act.

Also Read | It’s hard to tell when the crypto bubble will burst, or if there is one

Another important point to be noted is that the investors will not have to pay tax for just holding cryptos or NFTs, it is taxable only when they earn income from transaction, transfer or exchange of the digital assets.

The crypto market in India grew 641 per cent in the year through June 2021, according to an October report by industry research firm Chainalysis.

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