Now that the dust has finally settled on Budget 2022, let's break down the crypto tax and what that means for everyone.
We've spent the last 24 hours breaking down the Finance Bill 2022 and here's what we found.
Crypto tax - a thread 🧵
We've spent the last 24 hours breaking down the Finance Bill 2022 and here's what we found.
Crypto tax - a thread 🧵
1/ You've all seen the news - there's a new tax introduced on cryptocurrencies in Budget 2021. How does this affect you? Is this good news or bad news?
Let's get into it.
Full article below:
Let's get into it.
Full article below:
https://twitter.com/GalacticAdvisor/status/1488760420882006017?s=20&t=9eBogne24WiYRwBNJo85Lg
2/ Virtual Digital Asset 🪙
Virtual digital assets have an official definition now. Broadly, here’s what it includes:
- All cryptocurrencies (whether on private or public blockchain)
- All NFTs
- Any other digital asset that the Government may notify
Virtual digital assets have an official definition now. Broadly, here’s what it includes:
- All cryptocurrencies (whether on private or public blockchain)
- All NFTs
- Any other digital asset that the Government may notify
2/ Tax on Transfer
There is a flat tax of 30% (plus surcharge and cess) on transfer of a virtual digital asset.
The transfer is treated as income from capital gains. No other expenses are allowed. Only cost of acquisition is allowed as a deduction.
There is a flat tax of 30% (plus surcharge and cess) on transfer of a virtual digital asset.
The transfer is treated as income from capital gains. No other expenses are allowed. Only cost of acquisition is allowed as a deduction.
3/ Example:
Nikhil has invested INR 1 lakh in Bitcoin 5 years ago. This is worth INR 40 lakh now. He decides to sell all his Bitcoin. How is tax calculated?
Tax for Nikhil will be calculated as under:
Nikhil has invested INR 1 lakh in Bitcoin 5 years ago. This is worth INR 40 lakh now. He decides to sell all his Bitcoin. How is tax calculated?
Tax for Nikhil will be calculated as under:
4/ (plus applicable surcharge and cess).
Nikhil cannot claim any expenses against this sale of crypto.
What if Nikhil had mined this crypto though? Does he get to consider the cost of his mining setup? More on this in the ambiguities section.
Nikhil cannot claim any expenses against this sale of crypto.
What if Nikhil had mined this crypto though? Does he get to consider the cost of his mining setup? More on this in the ambiguities section.
5/ What does this mean?
A lot of people were thinking of including trading/ investing in crypto or NFTs as business income and taking expenses against this (read - Salary to family, rent, depreciation, etc).
A lot of people were thinking of including trading/ investing in crypto or NFTs as business income and taking expenses against this (read - Salary to family, rent, depreciation, etc).
6/ The Government has essentially said "nope - if you want to trade in crypto, we want a blind 30% of your gains".
7/ Set-off of Loss
Set-off of loss shall not be allowed against any other income. This is where there is going to be a lot of debate. There are reports that suggest you can't set off a loss from one crypto against a gain from another crypto.
Set-off of loss shall not be allowed against any other income. This is where there is going to be a lot of debate. There are reports that suggest you can't set off a loss from one crypto against a gain from another crypto.
8/ Our interpretation is that crypto/ NFT loss can be set-off against crypto/ NFT gain (in the same year).
However, crypto loss cannot be set-off against gains on equity shares, debt mutual funds, real estate, etc.
However, crypto loss cannot be set-off against gains on equity shares, debt mutual funds, real estate, etc.
9/ This means that you can't book all your crypto losses and set it off against profits in the stock market.
10/ Carry forward of Loss
You cannot carry forward any losses from virtual digital assets.
If you have booked losses in the hopes to carry it forward, book corresponding gains! Your losses will be wasted otherwise.
You cannot carry forward any losses from virtual digital assets.
If you have booked losses in the hopes to carry it forward, book corresponding gains! Your losses will be wasted otherwise.
11/ Example:
Let's assume Mr. Smartass has the following capital gains in a year:
Let's assume Mr. Smartass has the following capital gains in a year:
12/ Mr. Smartass thinks since has made an overall loss, he need not pay any tax this year. Let's see how it works out though.
Tax for Mr. Smartass will be calculated as under:
Tax for Mr. Smartass will be calculated as under:
13/ (plus applicable surcharge and cess).
Loss from sale of Virtual digital asset cannot be set-off against any other gains.
Loss from sale of Virtual digital asset cannot be set-off against any other gains.
14/ Carry forward of loss
In the above example, Mr. Smartass thought that he'll just set-off his loss against crypto gains from next year.
He's in for a rude awakening though.
In the above example, Mr. Smartass thought that he'll just set-off his loss against crypto gains from next year.
He's in for a rude awakening though.
15/ The INR 15,00,000 of loss for Mr. Smartass will be lost forever. This loss cannot be carried forward.
So if you want to be a smartass and ensure you plan your taxes correctly, you now know what to do :)
So if you want to be a smartass and ensure you plan your taxes correctly, you now know what to do :)
16/ Or.. you can just contact us and our team of experts will be happy to help.
thegalacticadvisors.com/contact-us
thegalacticadvisors.com/contact-us
17/ TDS
TDS at 1% will be deducted from your sale value.
Note: This is not an additional tax. The tax is not 30% + 1%. TDS can be set-off against your actual tax liability.
TDS at 1% will be deducted from your sale value.
Note: This is not an additional tax. The tax is not 30% + 1%. TDS can be set-off against your actual tax liability.
18/ There's a few nuances to the TDS rules that still need to be clarified.
While centralized exchanges will start deducting TDS (that should be fairly straight forward), question is how do you deal with decentralized exchanges as well as P2P transfers.
While centralized exchanges will start deducting TDS (that should be fairly straight forward), question is how do you deal with decentralized exchanges as well as P2P transfers.
19/ TDS is required to be deducted when:
Consideration is payable by
- Individual/ HUF whose turnover for previous year was less than INR 1 crore (business) or INR 50 lakh (profession):
AND Sale value/ Consideration paid to a person in a financial year exceeds INR 50,000
Consideration is payable by
- Individual/ HUF whose turnover for previous year was less than INR 1 crore (business) or INR 50 lakh (profession):
AND Sale value/ Consideration paid to a person in a financial year exceeds INR 50,000
20/
- Individual/ HUF who doesn't have income from business or profession:
AND Sale value/ Consideration paid to a person in a financial year exceeds INR 50,000
- Individual/ HUF who doesn't have income from business or profession:
AND Sale value/ Consideration paid to a person in a financial year exceeds INR 50,000
21/
- Any other person/ entity:
AND Sale value/ Consideration paid to a person in a financial year exceeds INR 10,000
- Any other person/ entity:
AND Sale value/ Consideration paid to a person in a financial year exceeds INR 10,000
22/ What does this mean?
Centralized exchanges like WazirX, Vauld, CoinDCX will deduct TDS at 1% if crypto sold is more than INR 10,000.
If you are in the Web 3.0 world, and make payments in crypto currency, you may have to start deducting TDS.
Centralized exchanges like WazirX, Vauld, CoinDCX will deduct TDS at 1% if crypto sold is more than INR 10,000.
If you are in the Web 3.0 world, and make payments in crypto currency, you may have to start deducting TDS.
23/ How does TDS work?
Let's continue with the Nikhil example:
Nikhil has invested INR 1 lakh in Bitcoin 5 years ago. This is worth INR 40 lakh now. He decides to sell all his Bitcoin. He has his account on WazirX which deducts appropriate TDS at 1%.
Let's continue with the Nikhil example:
Nikhil has invested INR 1 lakh in Bitcoin 5 years ago. This is worth INR 40 lakh now. He decides to sell all his Bitcoin. He has his account on WazirX which deducts appropriate TDS at 1%.
24/ Tax for Nikhil will be calculated as under:
25/ (plus applicable surcharge and cess).
Notice that the TDS is 1% of sale value (INR 40 lakh). The TDS is set-off against the tax liability. It is not an additional tax.
Notice that the TDS is 1% of sale value (INR 40 lakh). The TDS is set-off against the tax liability. It is not an additional tax.
26/ Ambiguities
While the new crypto regulations do bring in some regulatory clarity, there are quite a few issues still left open to interpretation:
While the new crypto regulations do bring in some regulatory clarity, there are quite a few issues still left open to interpretation:
27/ Crypto mining:
If only cost of acquisition is allowed, how do crypto miners deal with their taxes? What about their costs associated with running mining rigs?
If only cost of acquisition is allowed, how do crypto miners deal with their taxes? What about their costs associated with running mining rigs?
28/ Crypto swaps
Everyone in the Web 3.0/ Crypto world knows that there are millions of crypto pairs. How do you deal with tax on these?
Our view is that each crypto swap is a taxable event and you have to pay taxes on the fair market value (INR value) each time you do a swap.
Everyone in the Web 3.0/ Crypto world knows that there are millions of crypto pairs. How do you deal with tax on these?
Our view is that each crypto swap is a taxable event and you have to pay taxes on the fair market value (INR value) each time you do a swap.
29/ Overseas exchanges
While we expect the WazirX, CoinDCX and Zebpays of the world to comply with Indian regulations, what about overseas exchanges like Binance, Coinbase, etc?
How do you deal with tax on transactions on these exchanges?
While we expect the WazirX, CoinDCX and Zebpays of the world to comply with Indian regulations, what about overseas exchanges like Binance, Coinbase, etc?
How do you deal with tax on transactions on these exchanges?
30/ Decentralized exchanges
What if you have transactions on Pancakeswap or Uniswap? What if you transfer funds between your Metamask Wallet and Trust Wallet?
The current regulations are extremely ambiguous in dealing with these matters.
What if you have transactions on Pancakeswap or Uniswap? What if you transfer funds between your Metamask Wallet and Trust Wallet?
The current regulations are extremely ambiguous in dealing with these matters.
31/ Airdrops
How do you handle Airdrops? Do these count as income from other sources? Should they also be taxed at the flat 30% even if you don't sell?
How do you handle Airdrops? Do these count as income from other sources? Should they also be taxed at the flat 30% even if you don't sell?
32/ Staking/ Yield farming/ Liquidity providing
How do you handle staking/ farming or other yield generating activities? Should these also be taxed at the flat rate of 30%?
How do you handle staking/ farming or other yield generating activities? Should these also be taxed at the flat rate of 30%?
33/ A bigger issue seems to be that these would involve transfer to another wallet - which appears to be a taxable event.
Even if you transfer for staking or lending, the ownership of the transferred wallet is not yours, so it's a taxable transfer.
Even if you transfer for staking or lending, the ownership of the transferred wallet is not yours, so it's a taxable transfer.
34/ While there appears to be no clear cut answer for these questions, we have been operating a crypto compliance model to handle such matters specifically. Feel free to reach out!
thegalacticadvisors.com/crypto-complia…
thegalacticadvisors.com/crypto-complia…
35/ Good news or Bad news?
Overall, this does seem to bring some regulation to the crypto world.
Overall, this does seem to bring some regulation to the crypto world.
36/ While hardcore believers in crypto concepts such as decentralization might balk at the regulations, a lot of people are glad they live in a world where the Government finally recognizes crypto.
37/ That being said, the Government has been very clever in not using the word crypto at all and defining Virtual Digital assets.
38/ Does this mean crypto is legal?
Unfortunately, no. But it's not illegal - and that's always a plus.
We'll have to wait for the crypto regulation bill before we know the actual stance of the Government. For now, it does seem like the Govt is on the path to recognition
Unfortunately, no. But it's not illegal - and that's always a plus.
We'll have to wait for the crypto regulation bill before we know the actual stance of the Government. For now, it does seem like the Govt is on the path to recognition
39/ However, it's almost certain that the Government is going to treat Crypto as an asset and does not want you to be accepting money in crypto terms as legal tender.
40/ Liked this thread? Please retweet for wider coverage. 🚀
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Back to the top:
https://twitter.com/manansmehta5/status/1488764041258762248?s=20&t=_8mNlJvL1wMcOxsztswwhQ
41/ Wanna know more about the Budget 2022? Here's my master thread for #Budget2022
https://twitter.com/manansmehta5/status/1488382457787256833?s=20&t=_8mNlJvL1wMcOxsztswwhQ
42/ I do regular threads on all things tax, finance and startups!
Go ahead and follow me @manansmehta5 for more such threads.
Here's my master thread of threads:
Go ahead and follow me @manansmehta5 for more such threads.
Here's my master thread of threads:
https://twitter.com/manansmehta5/status/1429311452888764418?s=20&t=_8mNlJvL1wMcOxsztswwhQ
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