Have you made any cryptocurrency investments? This is how taxes are applied whether you buy or sell.
The recent ITAT decision confirms that cryptocurrency should be regarded as an asset and that proceeds from its sale should be treated as capital gains rather than other types of income. This distinction is important because it clarifies how bitcoin gains are taxed.
Cryptocurrency taxes: By deciding that revenues from cryptocurrency sales should be treated as capital gains rather than income, the Income Tax Appellate Tribunal (ITAT), located in Jodhpur, has clarified how cryptocurrencies are taxed. A former Infosys employee successfully contested the Income Tax Department’s classification of Bitcoin as income, leading to this verdict.
In addition to granting the individual a reduced tax rate, the verdict permitted them to claim an exemption of Rs 4.95 crore under Section 54F of the Income Tax Act.
What is my tax liability? Do the math now.
In FY 2015–16, the Bengaluru-based taxpayer used money from their Infosys paycheck to invest Rs 5 lakh in Bitcoin. The cryptocurrency was sold for Rs 6.69 crore in FY 2020–21, five years later, and the proceeds were used to buy a home. In spite of this, the Income Tax Department sent out a notification stating that the gains need to be subject to 30% taxation under the 2022 VDA tax scheme.
After examining the data, the ITAT decided in favor of the taxpayer because the Bitcoin transaction occurred prior to April 1, 2022, when cryptocurrencies were not yet formally recognized as Virtual Digital Assets (VDAs). Since the tribunal acknowledged Bitcoin as a capital asset, the profits could be subject to long-term capital gains (LTCG) taxation at
How are cryptocurrencies like dogecoins and bitcoins taxed in India?
According to Section 115BBH of the Income Tax Act, 1961 (henceforth referred to as the “IT Act”), gains derived from the transfer of virtual digital assets, including cryptocurrencies like bitcoins, dogecoins, etc., are taxed at a flat rate of 30% (excluding surcharge and cess), according to CA (Dr.) Suresh Surana.
It is important to remember that the taxpayer cannot deduct anything from these gains other than the acquisition cost. Therefore, it is not possible to claim expenses like as depreciation, mining costs, or transaction fees. Additionally, losses from bitcoin trades cannot be carried over to other fiscal years or deducted from any other revenue.
Furthermore, 1% TDS under section 194S is imposed on the sale of cryptocurrency assets for more than Rs. 50,000 (Rs. 10,000 for other individuals) in a single fiscal year. The platform that facilitates the transaction deducts this TDS, which is applicable to both resident and non-resident taxpayers. The phrase “specified person” refers to a person for the purposes stated:
- A Hindu undivided family (HUF) or an individual who does not receive any revenue under the heading of “profit and gains of business or profession”; and
- A person or HUF that earns money under the heading of “profits and gains of business or profession,” but whose business turnover does not exceed Rs. 1 crore, or whose gross receipts, in the case of a profession, do not exceed Rs. 50 lakhs. (The fiscal year that immediately before the fiscal year in which the VDA is transferred is when this threshold is observed.)
How do taxes get applied?
As previously indicated, a 1% TDS is imposed on payments for cryptocurrency transfers that exceed Rs. 50,000 for certain individuals or Rs. 10,000 for others within a fiscal year. Nevertheless, the aforementioned deduction is not necessary in the following situations:
- The consideration must be paid by a designated individual and its total value cannot beyond Rs. 50,000 during the fiscal year; or
- The consideration can be paid by anybody other than a designated individual, and its total value during the fiscal year cannot exceed Rs. 10,000.
When selling
In response to Q1, profits from the selling of cryptocurrencies would be subject to the previously indicated taxes.
How taxes on NFTs differ from those on cryptocurrencies
Non-Fungible Tokens (NFTs) and cryptocurrencies are subject to the same taxation as Virtual Digital Assets (VDAs), according to CA (Dr.) Suresh Surana. Section 115BBH of the IT Act taxes both at a flat 30% rate (plus any relevant surcharge and cess) on gains. The way losses are handled, however, makes a significant difference.
Since cross-asset loss adjustment is prohibited, losses from the transfer of NFTs cannot be offset by gains from cryptocurrencies or other VDAs. Due to this restriction, taxpayers must carefully consider any potential losses when working with NFTs because they cannot be used to lower the total amount of taxes owed on other transactions involving digital assets.
Frequetly Asked Question
Cryptocurrency gains are taxed under Section 115BBH of the Income Tax Act, 1961, at a flat rate of 30% (excluding surcharge and cess). Only the cost of acquisition can be deducted; no other expenses like mining costs or transaction fees are allowed.
No, losses from cryptocurrency transactions cannot be offset against other income or carried forward to future years. This restriction applies to cryptocurrencies and other virtual digital assets (VDAs), including NFTs.
A 1% TDS is imposed on the sale of cryptocurrency assets exceeding Rs. 50,000 for specified individuals or Rs. 10,000 for others in a fiscal year. The platform facilitating the transaction usually deducts this TDS.
Yes, according to a recent ITAT decision, cryptocurrencies are treated as capital assets. Gains from their sale are subject to long-term or short-term capital gains tax, depending on the holding period, rather than being classified as income.
Both cryptocurrencies and NFTs are taxed at a flat 30% under Section 115BBH. However, losses from NFTs cannot be offset against cryptocurrency gains or other VDAs, emphasizing the need for careful tax planning when dealing with these assets
