If you have invested in cryptocurrencies in the financial year 2023-2024, then the chances are that you earned significant profits in the year gone by.
Most top crypto currencies reported noticeable jump in their prices in the past few months. Bitcoin rose nearly 108 percent in the past one year, while ether rose nearly 80 percent during this time.
Bitcoin, however, has started to drop recently, and lost nearly 4 percent in the third week of June 2024.
There are two forms of tax that are imposed on trading in crypto transactions.
1. When you transfer crypto tokens, also known as virtual digital assets (VDAs) in the taxation lingo, investors are meant to pay 1 percent TDS (tax deducted at source), as per Section 115BBH of Income Tax Act, 1961 that deals with tax on income from virtual digital assets.
2. When you make profits on crypto transaction, you are liable to pay 30 percent flat tax on the profit. There is a 4 percent less over and above 30 percent tax. There is no capital gain tax or tax on lower rate of interest levied on crypto transactions.
Key provisions relating to crypto tax that taxpayers must be aware of:
1. The law also states that any gift of virtual digital assets is liable to be taxed in the hands of the recipient.
2. Flat rate of 30 percent is imposed regardless of time duration for which crypto tokens are held.
3. This is not the first time that income earned on crypto assets will be taxed. 30 percent tax on crypto income came into effect on April 1, 2022 and 1 percent TDS came into force from July 1, 2022.
4. These provisions were introduced in FY 2022 under section 115BBH of Income Tax Act.
5. The latest Budget announcements including the interim budget of 2024 did not introduce any changes in tax on cryptocurrencies.
6. To compute income on crypto transaction, one can deduct cost of acquisition, while no other deduction is allowed.
7. There is no provision of setting off of losses incurred in crypto transaction against any income – even the gains earned on cryptocurrencies.
These provisions were introduced in the wake of phenomenal increase in transactions in virtual digital assets, Finance Minister Nirmala Sitharaman had stated while presenting the Budget in Feb 2022.