The advent of cryptocurrency has reshaped the financial world across the globe. The digital currency has been under the limelight for the past few weeks because of certain factors such as the rapid fall and rise in the price of crypto, disclosure of certain high net worth crypto users, and actions that are being taken by various governments all over the world. In this article, we will discuss various taxes that have been levied on cryptocurrency earnings.
As cryptocurrency provides high returns, therefore there are many Indians who have invested in the digital currency like Bitcoin, Dogecoin, Ethereum, etc. Such investors must choose appropriately while they prepare their tax returns. They must put required disclosure about their cryptocurrency earnings.
Treatment for earnings from cryptocurrency is neither specified by the Income Tax Act 1961 nor by the Central Board Of Direct Taxes. So there is no specific Income Tax on cryptocurrency. So any income earned by investing in digital currency is either taxed as income from capital gains or as profits from profession or business. So the cryptocurrency tax rate depends on whether a user holds cryptocurrency as a stock in trade or investment or not.
Digital currency in its generic definition gives the holder the right to spend/access and can be qualified as a financial asset. This is because the Indian regulatory framework does not consider this as a legal tender.
According to the act, any form of asset, internet in the form of a capital asset, and digital currency are not particularly excluded from the generic meaning of a capital asset. Cryptocurrency becomes fungible as it is kept in an electronic wallet which results in an issue to identify which part of the purchase is sold and also the acquisition cost.
Taxpayers who invest and hold the cryptos as stocks in trade can be considered as traders. An individual will be qualified to be called a trader or an investor on the basis of the frequency of selling and buying, the time span of holding, and the reason for investment.
When a taxpayer qualifies as an investor or a trader all the cryptocurrency earnings shall be under the taxation from profession or business. Since digital currency is also regarded as an asset there should be cryptocurrency taxes as the stated schedule.
Apart from taxes on cryptocurrency gains, there have been new TDS rules that have been issued by the Income Tax department where there are some changes in the functionalities of the taxation.
The Income Tax department of India asserted that they have formulated a new utility to help the tax deducted at source. The Central Board of Direct Taxes (CBDT) issued a notice on Monday regarding the enforcement of section 206AB and 206CCA along with higher tax collection/deduction for some non-filers.
The Income Tax department on Monday tweeted,
According to CBDT the new enforced functionality – ‘Compliance check for sections 206AB and 206CCA’ would simplify the burden of this compliance.
The new budget of 2021 has successfully brought in provisions that state that the non-filers of the Income tax return for the past two years will be subjected to higher TDS and TDC rates if the tax deduction in such cases was Rs 50,000 or even more.
Now there is a question that is arising in the minds of many, will there be any such Income Tax mandate on cryptocurrencies, and if there is one then what will be the cryptocurrency tax rate? This is because the return on cryptocurrency is high and so the rate of taxation will also tend to differ.
According to a new schedule, every individual who holds/invests in digital currency will have to pay a tax on cryptocurrency earnings, even though that will not be directly inserted in Income tax but will be included with a capital gain or profit on profession or business.