So, if you are one of those people who have made investments or have been exploring 'cryptocurrency' as an asset class, the recent budget has put out some guidance paving clarity on how it will be taxed, yet there remain some stark question marks over how certain provisions will play out. For instance, whether a GST will be applicable. First things first, there have been a number of theories around Cryptocurrency, especially about its legal validity and the taxation play around it in the Indian context, some of which are still ambiguous. So, let's try to dig deeper to understand at what level the budget has now made the big canvas clear on Cryptocurrency.
Move on from PDA to Crypto: Govt now calls it VDA
If you're a 'cryptocurrency' enthusiast or investor, the budget has now clearly laid out a few guidelines and regulations pertaining to it. The Finance Minister Nirmala Sitharaman announced that there will be a tax of 30% on income from cryptocurrencies. For the taxation purpose, cryptocurrencies have now been included in the definition of Virtual Digital Asset (VDA).
For calculating such income only cost of acquisition is to be allowed as a deduction, which means no amount pertaining to any other expenditure (any transactional cost, interest cost of borrowing etc.) is allowed to be deducted. However, the basic exemption limit (Rs 2,50,000) is not applicable on income from transfer of cryptocurrencies.
However, if the transfer of VDA results in a loss, such loss can't be set-off against any other income, nor shall such loss be allowed to be carried forward to subsequent tax years.
Notes –
1) Loss from transfer of any VDA cannot be set off against any other income. Accordingly, in case 1, loss of INR 300,000 from sale of bitcoin is not set off against the gains of INR 600,000 from sale of shares of Infosys or from IFOS,
2) No deduction in respect of any expenditure other than cost of acquisition shall be allowed while computing the income from transfer of virtual digital currency.
3) Accordingly, brokerage and other charges have not been considered.
4) No other loss or allowance can be set off against gains from transfer of virtual digital currency. Accordingly, in case 2 loss from sale of shares of Infosys amounting to INR 200,000 is not available to be set off against the gains of INR 300,000 from sale of bitcoin.
5) Further, loss from sale of virtual digital currency cannot be carried forward to subsequent tax years.
6) Also, as per the proposed amendments, the bitcoins worth INR 200,000 shall be offered to tax by Subhash, under the head IFOS while filing his individual tax return.
The amendment is a welcome step for bringing clarity in the taxation aspect. However, it is pertinent to note that trading/ dealing in cryptocurrency has not been legalized in this budget. There is clarity awaited in such regards.
Key points that still require clarification from government
While a scheme of taxation has been provided for VDA, there are still certain ambiguities around the VDA taxation.
1) While taxation of transfer of VDA has been clarified, there is no clarity on taxation of activities such as development and creation of VDA.
2) If a person pays for a good or service in cryptocurrency, whether payment will be considered as a mode of settlement or as sale of cryptocurrency to another person against consideration of goods or services. This leads to the question of whether the purchaser of goods/ recipient of services will have to pay taxes separately on this transaction by considering it as a ‘transfer’ of VDA. Whether the seller of goods/ provider of services will have to deduct TDS while receiving the payment through VDA.
3) Cryptocurrencies are mostly bought and sold in foreign currency. Accordingly, an increase or decrease in value of the rupee will also result in fluctuation in gain or loss. How are gain/loss arising from forex fluctuation to be treated?
While the Government has clarified its stand from the Income Tax perspective, no clarity has been provided with respect to Crypto Currencies from a GST standpoint. There are various aspects on which clarity is required under GST Law so that investors are sure of the GST implications and are able to make more informed decisions. Primarily, below are some major area where Government needs to provide to clarity:
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