What's up with the 30% crypto tax on Bitcoin losses and ETH gains? It will operate as follows:

If you make money, we make money. If you lose, you lose - GoI" It's possible that the government didn't specifically declare this in the Budget 2022, but this is what Indians have been circulating online ever since February 1. According to the government's official definition of "virtual digital assets," which includes cryptocurrencies, the taxation of these digital assets was clarified in Budget 2022. The crypto community was overjoyed at this point, believing it to be a sign that cryptocurrencies were being made legal. It's simple to extrapolate from budget 2022's finer elements — that is, the things that weren't explicitly said in FM's address — that while the government hasn't outright banned cryptocurrency, it has still taken steps to limit the amount of speculative trading in this asset class.

What follows in the Memorandum on the Finance Bill of 2022's provisions makes this clear:

No loss resulting from the transfer of virtual digital assets may be set against against any income calculated under any other provision of the Act, and such loss may not be carried forward to future assessment years.

For the purpose of bolstering our tax base, it is suggested to add Section 194S of the Act, which would allow the deduction of one percent of the price paid for the transfer of virtual digital assets to a resident.

Allow me to clarify on all of this for you:

Assume you purchase Rs 1 lakh worth of bitcoins on July 1st, 2022. Allowing for inflation, let's say your bitcoins are worth Rs 50K on August 1st, 2022. Because of this, your monthly losses have totaled $50,000 in just one month.

As a result, you decide to record this loss and withdraw money from bitcoins because you don't expect it to rebound any time soon and you want to cut your losses.

As a result, you record a loss of Rs. 50,000 and withdraw the money. You will not get your 50,000 back at this time. Instead, you'll earn back Rs 49,500 because 1% TDS would be deducted from your pay packet. TDS will be deducted regardless of whether you make a profit or a loss at the time of redemption.

On 1st August 2022, you invest this Rs 49,500 in Ethereum.

On March 1, 2023, Ethereum is valued at Rs 80,000. You decide to get rid of it and take the money you've earned. That's because 1% TDS is deducted from the amount you get back.

As a result, on March 1, 2023, you will no longer have any cryptocurrency holdings.

In the fiscal year 2022-23, these are the results of your cryptocurrency investments:

  • A TDS of Rs 500 was deducted off the loss of Rs 50,000 on bitcoin.
  • On the Ethereum platform, I made a profit of Rs 30,500 and had TDS of Rs 800 deducted from that profit.
  • You lost -50,000 + 30,500 = -19,500 in total.
  • And I've already paid the government Rs 1300 (500+800) in taxes.

But since you've lost money on your crypto investments, you don't have to pay tax. As a result, when you file your ITR for 2022-23, you'll be able to show that you lost Rs 19,500, thus you'll be able to claim back the Rs 1300 in TDS. The government will graciously reimburse you for it.

As a result of the massive success of Ethereum, you've decided to give cryptocurrencies another shot in the upcoming financial year.

So,

On April 1st, 2023, you buy Rs 1 lakh worth of Ethereum. It will be worth Rs 1.4 Lakh on March 1st, 2024. You decide to get rid of it and take the money you've earned.

Because of the TDS of Rs. 1400, your account will be credited with Rs. 138,600. When you file your ITR year 2023-24, you'll most likely use the following formula to determine your tax liabilities for cryptocurrency investments:

>. Profit of Rs. 40,000 less the loss of Rs. 19,500 from the previous year. For the sake of comparison, that works out to about $20,000. You may state that you must pay a tax of 30 percent of Rs. 20,500, which amounts to Rs. 6,150.

>However, this is not acceptable to the government. Losses from virtual digital assets, according to the government, cannot be carried forward. Businesses, mutual funds, stocks, and so on can carry forward losses, but not virtual digital assets.

However, the government wants you to pay 30 percent tax on Rs 40,000, which amounts to Rs 12,000.

Since the government has already deducted TDS of INR 1,400, you must pay an additional INR 10,600 to them. "Your profits are our profits, and your losses are your losses" seems to be the common interpretation of crypto taxes.

Carrying forward losses is a major limitation. For a new asset class like bitcoin, this is even more true because of its volatility character at this time. There is no doubt that the government is trying to prevent cryptocurrency trade.

Furthermore, as Nithin Kamath (Founder of Zerodha) noted out just a few days ago, the impact of a 1% TDS will be enormous on trading volumes. For the sake of simplicity, he stated that since 1 percent TDS is deducted from each transaction, any trader who makes 50 trades in a financial year will see half of their money blocked in TDS, regardless of whether they make a profit or not. In order for a market to continue, active traders are essential since they help keep the market afloat.

However, a 1% TDS will dramatically reduce trading activity. It has the potential to completely devastate the market. To make matters worse, the government will only allow the purchase price to be deducted as an expense from profits.

This means that any additional expenses, such as fees for the use of a website or a broker's charge as well as the cost of power or internet service are not deductible. It's important to keep in mind that these kinds of costs might be deducted from the proceeds of stock and derivatives trading as business-related expenses.

As a result, any losses incurred in crypto trading cannot be used to offset other forms of income. Crypto trading losses can be used to offset solely crypto trading gains. Cryptocurrencies are currently unregulated by the government. But at the very least, they've taken a step to discourage short-term trading.

Future:

Cryptocurrency veterans are optimistic and optimistic about this development. At the very least, they say, the conversation has begun. Cryptocurrencies have been taxed, but the government hasn't enforced a blanket prohibition on the use of the currency. They are looking forward to a more carefree time. The crypto community has high ambitions, so here's hoping they come true.

It seems to me that cryptocurrency trading and investing ought to have been treated the same way. You must pay taxes on your business's profits and losses, including those from intraday trading and derivatives trading. No matter what tax bracket you're in when it comes to crypto, you'll still owe 30% of your earnings in taxes.

In addition, short-term and long-term capital gains apply to equities and mutual funds. As far as I know, there's no such thing as crypto revenue. Introduced capital gains could have promoted long-term fundamental investments in cryptos to be founded upon.

But again, encouraging cryptocurrency investments wasn't the goal, was it?

** Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of USA GAG nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

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