The Union Budget 2022 brought with it a set of fresh announcements for the crypto space. Finance Minister Nirmala Sitharaman announced that any income from the transfer of 'virtual digital assets' would be taxed at 30 percent. These include cryptocurrencies and non fungible tokens (NFTs).
Lawyers Badri Narayan and Vivek Gupta answer key questions about the new tax regime in conversation with Bloomberg Quint.
Why Is Govt Calling It Income, Not Gains?
The government hasn't brought this crypto tax under the 'capital gains' head, notes Vivek Gupta.
"Stocks, land, mutual funds etc. are all subject to tax under the head capital gains. This tax that has been brought in is a very specific tax," he says, "all concepts that belong to capital gains therefore don't apply here."
"This is tax that will be charged at 30 percent, the maximum marginal rate plus surcharges. Only one deduction will be permitted, which is the original cost of acquisition of the asset," he adds.
Why Is It Being Called ‘Transfer’ Not ‘Sale’?
The government is looking to cover all sorts of transactions, including exchange of a cryptocurrency for another type of cryptocurrency, by using this particular terminology.
"Typically as lawyers we use the word sale for money considerations," says Badri Narayan, "You'll find sale of goods or services where typically one leg will be the goods leg and one leg will be the money leg."
"Really what they want to say is, if you sell for money or transfer other cryptocurrencies and make gains or losses based on that, we'll cover it. And of course any other barter that you do with respect to such goods vis a vis other services that you want to purchase, we'll cover it. All of these are inherently getting caught in the word 'transfer'," he adds.
Can You Offset Losses With Gains In This Category?
This, according to the two, remains a question mark as the written provision contradicts what Finance Minister Nirmala Sitharaman said in her address. However, it's clear that losses in this category cannot be offset against gains in other categories.
"My inital reading was that perhaps the intent is you just capture all the gains at one level, subject them to tax and the losses just vanish," says Gupta.
"Say I have two Bitcoins and I sell them at different points in time. On one there is a loss, on one there is a gain. Where is the provision which allows me to offset the gain against the loss?"Vivek Gupta
"Will (offsets be allowed) at a transaction level, or a block level, or will it be income in that year with respect to all transactions related to that year, is what we will have to see," adds Narayan.
How Will Tax Calculations Work?
Badri Narayan says that cryptocurrency transactions before the start of the new financial year on 1 April, can "reasonably" be taxed under capital gains, but there have been some disagreements. After that there will be no two ways about how to pay tax on crypto.
"What I feel is that now the government will be taxing cryptocurrency at the highest rate possible," he says and adds, "Based on that, if you want to sell the crypto and pay the tax and get out of it, by all means."
The lawyers clarified that this tax shouldn't apply to any non resident Indians and businesses that facilitate cryptocurrency transactions.
(This discussion was first published by BloombergQuint and has been reproduced with permission.)
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