Crypto tax: How cryptocurrencies are treated in India and around the globe


From being called speculative products to “virtual digital assets” (VDAs), cryptocurrencies have come a long way. Since April 1, India introduced a tax in all VDAs. The law states that any income earned from the transfer of digital assets would be taxed at 30 percent without deductions or exemptions. This would also apply to the gift of digital assets.

This comes at a time when countries are trying different approaches to regulating cryptocurrencies, as more and more investors enter this space looking for quick profits. In today’s column, we look at how India and other countries regulate digital assets.

Understanding Crypto Tax in India

Before delving into cryptographic tax laws around the world, it’s important to understand how the cryptographic tax works in India. In India, the 30 per cent income tax is levied on the proceeds from the transfer of VDA, including NFTs. “Taxpayers cannot offset losses from one VDA with the revenues of another VDA. Current income tax laws allow taxpayers to offset their long-term losses against long-term capital gains. However, this is not allowed for the proceeds from the transfer of VDA, “said lawyer Ishan Kapoor, who works as a special counsel with law firms in Mumbai and New Delhi, advising on matters related to the regulation of policies and taxes on cryptocurrencies. .

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Kapoor explains that if you gain a benefit from the Bitcoin Transfer (BTC) and a loss from the Ethereum Transfer (ETH), you cannot deduct the loss from the ETH Transfer from the BTC Transfer Benefit. “You will have to pay a one-time 30 percent tax on the profits from the BTC transfer,” adding that “losses from the cryptocurrency transfer cannot be offset by any other income. Therefore, investors cannot offset the losses arising from the transfer of VDA with income derived from the transfer of another physical asset, such as ownership, shares, or mutual funds.

In addition, losses arising from the transfer of VDA cannot be carried over to the following year. This means that losses arising from the transfer of VDA cannot be offset by future gains that may occur in subsequent years.

Lawyer Ishan Kapoor works as a special counsel with law firms in Mumbai and New Delhi, advising on matters related to the regulation of policies and taxes on cryptocurrencies. (Photo: Ishan Kapoor)

In addition, to incorporate VDA transactions into the financial reporting system, each cryptocurrency transaction is subject to a 1 percent tax deduction at source (TDS). As of July 1, 2022, it is proposed that a 1 percent tax withholding be applied on the total transaction value of the VDAs. “This is expected to severely affect traders as it leads to capital blockage and is likely to make daily trading, margin trading, etc. unviable, as these traders operate with very fine margins,” Kapoor tells indianexpress.com.

And other countries?

In the US, VDAs are treated the same as stocks. Any loss can be used to offset income tax from the transfer of VDA up to $ 3,000, and any other loss can be carried forward to the next financial year to be offset against future gains. Short-term capital gains are taxed in the upper tax bracket based on falling taxable income of investors, and long-term capital gains (for VDAs held for more than 12 months) are taxed at a much lower rate: 0 per one hundred, 15 percent. penny and 20 percent.

Like the US, VDAs in the UK are treated on a par with stock. If you buy and dispose of a VDA for personal investment purposes, you have to pay wealth tax. The United Kingdom allows losses arising from the transfer of VDA to be deducted from general capital gains.

In Canada, cryptocurrency is seen as a commodity, as a stock. If your cryptography is taxed as income, you will pay income tax on the total revenue of a cryptographic transaction. If your cryptocurrency is taxed as a capital gain, you will only pay capital gains tax on half of the profits from a cryptocurrency transaction.

Meanwhile, there are countries like The Savior who adopted Bitcoin as a legal course. The country has even announced a Bitcoin city for its residents where all transactions would be made through Bitcoin, so they will be free of property taxes or capital gains.

“Crypto still unregulated”

It should be noted that the Minister of Finance of the Union, Nirmala Sitharaman, has he stated that recording VDA transactions does not legitimize them. The Finance Act of 2022 defined VDAs in clause (47A) recently introduced under Section 2 of the IT Act of 1961. However, the VDA market in India remains unregulated.

“In order to legally recognize VDAs under the laws of India, it is essential that, through legislation, the Central Government provide definitions and classifications of different types of VDAs and regulate VDAs as a separate asset class. This can be done through enactment. separate or modifying the definitions of existing enactments (such as the Securities and Contracts Regulation Act), ”Kapoor points out.

All entities involved in the process of providing a platform for the purchase and sale of VDAs (i.e. stock exchanges, brokers) play the role of technology intermediaries. These intermediaries must be regulated by law.





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