Virtual digital assets are stored, transferred and traded electronically. It has code, information, number and token. The cryptographic means create these instruments. Cryptocurrencies use encryption to secure money transactions. Investments in cryptocurrencies are subject to regulatory, market, geopolitical and social media risks. If the entrepreneur tweets about electric vehicles, the price of cryptocurrency increases. Social media plays a significant role in the price fluctuation of cryptocurrency. There is no law or regulation for cryptocurrency in India. The Income tax department monitors the scenarios and related taxes. The blog highlights the taxation in trading, mining, airdrops, NFTs, and crypto donations. The tax evasion and investigations of cryptocurrency are alarming income tax departments. Insight into the cryptocurrency market is essential to understanding the functioning of the income tax department.
Different scenarios of crypto gains:
The cryptographic process creates Virtual digital assets. It operates through DeFi (decentralised finance) or non-fungible tokens. The creation of new units and operations of virtual digital assets is secured with encryption technologies. In the 2022 budget, the Indian government introduced a 30 per cent tax and a four per cent cess for cryptocurrencies. If the transaction value of cryptocurrencies exceeds INR 10000 or 50000, the government charges TDS. The traders in foreign exchange should pay the TDS amount manually to the government.
The different scenario-based taxation of cryptocurrency are listed below:
- Cryptocurrency investments charge a thirty per cent tax.
- Airdrops are the tokens distributed during the launch of a project. The calculation of tax of airdrops depends upon the mention of trading option, and value when receiving the token. If the value of airdrops crosses 50,000, it is under taxation.
- Cryptocurrencies are used as a gift to relatives and friends. In this case, the charge is for the value above 50,000. The income tax department will charge tax if the gift is from an outsider and not a relative.
- NFTs require block chain networks. The sale of NFTs is through a cryptocurrency wallet. The wallets offering the NFT marketplace are metamask, platform-specific and trust wallets. NFT trading does not accept flat currency. It demands the cryptocurrency. After April 2022, a charge of 30 per cent is over NFTs and one per cent TDS.
- Mining is a vast process with decentralised networks that secure block chains to generate new coins and verify regular transactions. It makes use of the networks around the world. Mining income is under the tax slab rate. The two types of mining income are income from other sources or income from business.
- Crypto staking is the process of pledging the transaction on the block chain technology. The return is higher than the return from savings accounts. It has risks associated with the pledging activity of the transaction. The return is the reward received as cryptocurrency. The cryptocurrency value is subject to risk. The income from staking is as per the income tax rates.
- Crypto salaries from a foreign country are taxable in India. The rate is as per the income tax slab rates.
- Referral bonuses from cryptocurrency platforms are taxed as per the tax slab rates in India.
- Tax on token sales of ICO or IDO are charged in India. The ICO and IDO token sales are considered as VDAs. It is taxed at a rate of thirty per cent.
Investigations with crypto money:
Recent news says that investigators are monitoring gaming and betting apps for converting Indian money into cryptocurrency. The Directorate General of Goods and Services Tax Intelligence from Mumbai found a network that had collected around 700 crore from India through gaming apps. The money was channelled through cryptocurrency. The name of the company is Parimatch. DGGI arrested a payment aggregator with accounts from shell firms. These shell companies are operating under par match game and bet app services.
DGGI officials also found a broadcasting company received instruction from Parimatch for telecasting ads. The company also instructed the media company to hire celebrities for promotion. The Enforcement Directorate is investigating such gaming companies and shell companies. In India, these companies have no offices. They operate from foreign companies through phone calls and e-mail. Cryptocurrency uses technology to secure transactions. Officials say that there are advanced-level tools for monitoring the movement of cryptocurrency. The tax department also monitors money movement and brings out fraudulent activities.
Conclusion:
The cryptocurrency software provides service to the users with the calculation of tax for digital currency transactions. Crypto transactions are charged under capital gains and GST. Strategies with long-term investments and claiming deductions help minimise the tax amount. As per sections 276B and 271C, the government levies penalties for not deducting TDS. Section 115BBH says that It is not possible to adjust the loss from VDA against the gains. The cost of acquisition is the only allowed deduction. Losses are not allowed to be deducted from the gains. The tax laws are to monitor the crypto transactions and other related fraud activities to tighten the process.
