Budget 2022 has clarified that 30% tax would be payable on capital gains from crypto assets with effect from April 1, 2022. However, how tax is payable on these gains for current fiscal i.e. FY2021-22 is still a grey area with experts holding different views. One widely held view is that capital gains tax can be paid on these gains in this fiscal following the income tax laws that apply to capital gains.
Another view is that the 30% tax proposed in Budget 2022 on these gains needs to be paid even in the current fiscal to avoid any litigation on the matter later. One thing most experts agree on is that there is lack of clarity on this. However, if one pays tax on these gains in the current fiscal as per the first view (treating them on par with capital gains on securities) then one could save 10% tax by booking long term crypto gains before March 31, 2021 as against booking the gains in FY2022-23.
Crypto tax: What the new regulations mean & how they will impact investors
Tax on cryptocurrencies or virtual digital assets announced on Tuesday will create more problems for investors and their tax experts on computing gains and taxation. So what are the possible issues that new regulations will throw up? How will it impact your crypto income? And what will be its long term and short term impact on the crypto investors and exchanges? ET's Sachin Dave decodes. Watch
As per one expert view, tax on capital gains realised on sale of crypto assets held for 36 months or more can be paid at the rate of 20% with indexation for the current fiscal. From 1.4.2022, a straight 30% tax would be payable on these without any benefits such as indexation or deductions other than cost of acquisition.
Also read: Crypto losses can’t be set off, clarifies govt
However, if the crypto gains in the current fiscal are short term in nature (i.e the asset was held for less than 36 months) then the tax payable on them (if treated as capital gains) would be as per your income tax slab rate. If your income at the margin falls in the 30% tax bracket then you would be paying the same rate of tax on the gains in this fiscal as you would if the gains were realised in FY2022-23.
As per the Budget 2022 proposal, effective from April 1, 2022, any gains made on virtual digital assets (e.g cryptocurrencies, non-fungible tokens) would be taxed at a flat rate of 30% plus surcharge and cess at 4%, irrespective of how long the asset has been held. Further, only cost of acquisition will be allowed as deduction and no other deduction or set off of losses would be allowed. The tax rules on cryptocurrencies and other digital assets will come into effect from the new financial year, i.e., FY2022-23.
However, taxation of cryptocurrency sales for the ongoing FY was not mentioned in Budget 2022.
ET Wealth online spoke with chartered accountants and tax experts to find out how crypto investors can calculate their liability for FY2021-22 keeping the latest budget proposals in mind. Here's what they had to say.
Saraswathi Kasturirangan, Partner, Deloitte India: Though Budget 2022 has clarified rules of taxation related of Virtual Digital Assets (VDA - read cryptocurrencies, NFTs etc.), there is still no clarity on how these are being taxed for FY 2021-22 and earlier. In absence of specific provisions, tax payers were adopting varied approaches depending on whether the income was in the nature of 'Income from business and profession' or from 'Capital Gains' and this was determined based on guidelines issued by tax authorities in respect to sale of shares and securities. If the intention of the seller was inclined towards trading in cryptocurrencies as stock-in-trade and the same is also reflected by way of volume and frequency of trades, the income may be categorized as 'Business income'. This income (net of related expenses) was taxable at applicable slab rates. Further, depending on the volume/ turnover of trading there may be requirement of maintaining books or being subject to a tax audit. However, if the intention of the seller was to hold the cryptocurrencies as investment, then the view adopted could be that the sale of cryptocurrency is to be classified under 'Capital Gains / Loss'. Further depending on the holding period of the capital asset i.e., cryptocurrency, the gain/loss may be classified as Long-term (more than 36 months) or Short-term (36 months or lower). Long term gains are subject to tax at 20% and the indexation benefit is available. Short term gains are taxable at normal applicable slab rates of the tax payer.
Chartered Accountant Naveen Wadhwa, DGM, Taxmann.com: Union Budget 2022 has provided clarification regarding taxation of virtual assets (Cryptocurrencies, NFTs etc.) effective from April 1, 2022. However, there is still no clarity regarding the taxation of profits from virtual assets for FY 2021-22. In such a scenario for FY 2021-22, gains from these currencies can be treated like any other capital asset, where all the other normal provisions of the Income-tax Act, 1961 will apply. Gains that occurred will be classified as long-term capital asset if held for more than 36 months. These gains will be taxable at 20 per cent plus applicable surcharge and cess. Otherwise, the gains would be classified as short-term capital gains. These will be taxable at normal slab rates plus applicable surcharge and cess. Further, individuals should be able to claim all other provisions for deduction of selling expenses, indexation, rollover exemptions in case of long-term gains, carry forward and set off of losses etc. However, gains from crypto assets can be taxed as business income if the frequency of trade is very high.
Dr Suresh Surana, Founder, RSM India: The provisions for taxation of virtual digital asset (except TDS) are proposed to be effective from 1 April 2022 i.e. Financial Year 2022-23 and onwards. However, there is no clarity with respect to the taxation of crypto assets which the taxpayers would have transferred/sold or gifted up to the financial year 2021-22. In the absence of specific provisions, different taxpayers have taken different positions. Most taxpayers who have purchased the crypto assets have treated the Crypto or virtual digital assets as "investment". In case the asset is held for a period exceeding 3 years prior to the transfer, the resultant gain is treated as long term capital gain taxable @ 20% u/s 112 of IT Act after availing benefit of indexation. In case of short-term capital gain, the same is taxable at the normal slab rates applicable to the person (could range from 0% to 42.7%) Some taxpayers have treated Crypto assets as business income or income from other sources and offered the gain for taxation at the regular tax rates. In case of Crypto assets acquired by mining, certain taxpayers have taken a view that it is a self-generated asset and hence, not subject to tax. On the other hand, certain taxpayers have treated the same as business income. Further, in case of a Resident and Ordinarily Resident (ROR) taxpayer holding any foreign assets (which would include Crypto assets issued outside India) is mandatorily required to file his tax return in India irrespective of the threshold limit. Moreover, such foreign assets should be disclosed in Schedule FA (Details of Foreign Assets and Income from any source outside India). In case if the crypto asset is not a foreign asset, then disclosure in Schedule FA would not be required. Several taxpayers may not have done the reporting as required. As would be evident from the above, the divergent positions would result in a lot of litigation and it would be helpful to permit taxpayers to report this income or the differential amount now and pay tax without interest or additional tax.
Abhishek Soni, CEO, Tax2win.in, an ITR filing website: As per the proposals of Budget 2022, gain on the transfer of the digital asset is to be taxed at 30%. Also, there will be no deduction of any expenses and no set-off of any other losses will be allowed. These provisions will be applicable from April 1, 2022. Now, the question arises of how the gain up to March 31, 2022, will be treated as the new provisions will be applicable from FY 2022-23. There could be two views of this situation as there is no clarity in the Budget in this regard. As per one possible view, gain realized up to March 31, 2022 can be treated as a long term capital gain and tax can be paid at the rate of 20% after deducting the expenses. As per the other possible view, tax is to be paid at the rate of 30% as there were no specific provisions in the law in this regard and tax can be paid according to the newly proposed law. In our view, tax needs to be paid at the rate of 30% to avoid any litigation in the future. Also, it is expected from the Government to issue necessary clarification in this regard.
Shalini Jain, Tax Partner, People Advisory Services, EY India: The government has clarified on the taxability of transfer of virtual assets effective FY 2022-23 - nature of income, tax rate, deductibility of other expenses. However, there is still lack of clarity on these aspects in respect to the taxability of such virtual assets in the current year i.e., FY 2021-22.
