Latest Rules Related to Cryptocurrency in India 2023
In 2023, cryptocurrency gains significance globally, including in India. Recent developments lead to definitive rules as the regulatory landscape changes continuously. Investors must stay updated on the latest rules, covering investment limits and taxation. Our guide explores the latest regulations and tax implications.
Cryptocurrency Status in India: Legal or Illegal?
So, is cryptocurrency legal in India or not? The response is: it's a complex matter. In 2018, the Reserve Bank of India (RBI) issued a prohibition on banks and regulated financial institutions from offering services to crypto-related businesses. In 2020, India's Supreme Court overturned the RBI's ban.
At present, cryptocurrency remains unregulated in India, allowing individuals to lawfully purchase, sell, and trade digital assets. Regulations are forthcoming. Individuals can invest legally. Major exchanges like Binance, CoinDCX, and WazirX cater to Indian crypto trading. Companies cannot directly deal with crypto. RBI ban applies to banks and financial firms. Beware of scams, use reputable exchanges, safeguard private keys, and avoid "crypto advisors."
Latest updates on Cryptocurrency 2023
Indian investors engaging in crypto or NFT trading must disclose their earnings from such activities as capital gains if they hold them as investments. However, if the crypto/NFTs are held for trading purposes, the profits will be treated as business income.
The latest Income Tax Return (ITR) forms for the fiscal year 2022-23 now feature a specialized segment named Schedule Virtual Digital Assets (VDA), which is designed for disclosing profits earned from cryptocurrencies, NFTs, and other virtual digital assets.
The deadline to submit income tax returns for the financial year 2022-2023 is 31st July 2023. If you miss this date, you can still file a belated return until 31st December 2023.
Budget 2022: Elaboration on the proposed Section 115BBH
The government has formally designated digital assets, including cryptocurrencies, as "Virtual Digital Assets." Any proceeds obtained from the transfer of virtual digital assets, such as cryptocurrencies and NFTs, will be subject to a 30% tax.
Income from one virtual digital currency cannot be offset by losses incurred from another digital currency. Tax liability will be imposed on the recipient when gifting digital assets.
The expenses associated with mining cryptocurrency assets will not be considered as part of the acquisition cost. Income from the transfer of digital assets will only permit the deduction of the cost of acquisition; no other deductions will be allowed.
Tax Implications of Cryptocurrency in India
The tax implications of investing in cryptocurrency are a crucial aspect that investors must understand. As cryptocurrencies gain popularity as an investment asset, the Indian tax authorities have been actively addressing the taxation of crypto transactions. The Indian government has recently clarified how crypto assets like Bitcoin will be taxed. Despite not being recognized as legal tender in India, cryptocurrency is still subject to income tax and capital gains tax.
In 2018, the Central Board of Direct Taxes (CBDT) clarified that cryptocurrency transactions are liable to be taxed under the Income Tax Act. Cryptocurrencies are considered to be capital assets, and any gains arising from their sale or transfer are categorized as capital gains.
The tax treatment for cryptocurrency is based on the holding period:
1. Income Tax: Any income you earn from crypto trading or mining will be taxed as business income. This means you’ll need to pay tax at the applicable income tax slab rates up to 30% depending on your tax bracket. The income from crypto will be added to your other taxable income to determine which slab you fall under.
2. Capital Gains Tax: When you sell or trade your cryptocurrency for a profit, capital gains tax will apply. Short-term capital gains from crypto held less than 36 months will be taxed at your income tax slab rate. Long-term capital gains from crypto held for more than 36 months will be taxed at 20% with an indexation benefit.
3. Loss Offset: The favorable aspect is that you can utilize capital losses from cryptocurrency to counterbalance capital gains. Suppose you happen to sell some crypto at a loss. In that case, it has the potential to decrease your tax obligations from other profitable crypto transactions or even reduce your capital gains tax in other investment categories such as stocks or real estate. Nevertheless, it is crucial to note that offsetting losses between cryptocurrency and regular income are not permitted, meaning that crypto losses cannot be used to reduce your overall income tax liability.
4. TDS Applicability: Currently, a 1% TDS is applicable on all sell transactions of Virtual Digital Assets (VDAs), including cryptocurrencies and NFTs, starting from 1st July 2022. However, TDS applies when transferring crypto to an Indian exchange or converting crypto into rupees. Taxpayers can claim TDS credit when filing their income tax returns.
The Future of Cryptocurrency in India
The trajectory of cryptocurrency in India remains both uncertain and filled with promise. The government's openness to embrace blockchain technology, coupled with a technologically adept younger generation, fosters hope for the widespread adoption of cryptocurrencies like Bitcoin and Ethereum. However, the landscape of regulation remains clouded and undefined.
Instead of implementing a complete ban, India may choose to legalize cryptocurrencies while imposing stringent regulations on their trading and usage. It is probable that Know Your Customer (KYC) and Anti-Money Laundering (AML) requirements will be mandatory for all crypto exchanges and traders. Moreover, there exists the potential to create a regulatory authority responsible for supervising the cryptocurrency market.
The government exercises caution to prevent fraud and money laundering without stifling innovation. New rules offer clarity but impose restrictions. As an investor, know your obligations and risks. Research thoroughly, and beware of get-rich-quick schemes. Though no crypto ban, tight regulations may delay mainstream adoption in India. Global crypto popularity, especially among the younger generation, may prompt a revisitation of the government's stance. Follow rules closely to avoid penalties. Invest only what you can afford to lose due to crypto volatility.
Director@GlobalVox | Founder - BiG Deal - blockchain based auction platform | Certified crypto and blockchain expert | ICO-IDO consultant