According to Archit Gupta, founder, and CEO of Clear, the taxpayer is only authorized to deduct the cost of acquisition from the sale price of a crypto asset. The government recently stated that mining infrastructure costs will not be included in the acquisition cost calculation.
Losses cannot be written off against cryptocurrency taxes.
The intra-head adjustment of losses, i.e. the set-off of a loss from one VDA with income from another VDA, is prohibited. Using an example, Gupta said that if you have a loss from the transfer of Bitcoin and a profit from the transfer of NFTs, you cannot deduct the Bitcoin loss from the gains from the transfer of NFTs. Profits from an NEFT transfer will be taxed at a flat rate of 30%.
Furthermore, losses from cryptocurrency transfers cannot be offset by revenue from any other source. This means that gains from the sale of equity, mutual funds, assets such as real estate, and so on will not be allowed to offset losses from crypto. Also, the taxpayer is not permitted to carry forward bitcoin losses under the cryptocurrency tax India rules.
Date of Crypto Tax Filing: When Will You Be Required to Pay 30% Crypto Tax?
From Assessment Year 2023-24, the taxpayer will be required to pay a 30% tax on cryptocurrency and other VDAs. That means that all of your income from the transfer of VDAs in FY 2022-23 will be taxed at a 30% rate.
Gupta advised crypto investors to determine their advance tax due after factoring in the tax on revenue from crypto and NEFT transfers and then pay the advance tax installments accordingly.
Tax on the Exchange of Cryptocurrency in Business Transactions
Virtual digital assets (VDA) are not currencies, according to the government.
“However, the term ‘transfer’ is not defined in regard to virtual digital assets in the Income Tax Act, as it is specified for capital assets.” “The law needs to clarify what ‘transfer’ means and if it covers transactions in which products or services are purchased using cryptocurrency,” Gupta added.
“If the law confirms that such transactions are considered a ‘transfer,’ then the TDS rule will apply here,” he noted. In this scenario, a person transferring cryptocurrency must deduct TDS because a transfer has occurred. Such an event will be taxed in the hands of the person transferring cryptocurrency.
Furthermore, the company will be obliged to disclose receipts based on the fair market value (FMV) of crypto accepted as payment for goods or services. If the business sells or transfers these cryptos in any way, an event of crypto transfer occurs, and tax must be paid on such transfer.
Tax on Airdrops of Crypto/NFT or Gaming Coins
Airdrops are a form of marketing strategy in which a company distributes tokens to users for free. Airdrops are usually done from a blockchain project to create buzz and expedite user growth. This is especially true when it comes to recent ICOs that need people to play around with the tokens and experiment with them.
It’s a smart move for companies, who can generally afford the cost of Airdrop better than individuals who might be less likely to want to help promote their product for nothing in return. There are so many new cryptocurrencies, tokens, and applications being released every day that it can be difficult to stay up to date on everything. Airdrops are akin to receiving an email containing a voucher and a discount code.
“Such crypto airdrops or coins gained through gaming may be regarded as gifts under the Income Tax Act, and such presents are taxable in the recipient’s hands,” Gupta explained.
Taxation of Cryptocurrency Received as a Gift
The definition of defined movable assets has also been enlarged by the government to include virtual digital assets. Thus, gifts in the form of crypto assets would be taxable if the fair market value exceeded the Rs 50,000 threshold limit.
However, Gupta stated that a simple reading of the crypto tax regulations indicates that gifts received from relatives or on particular dates are tax-free.
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