Cryptocurrency News: Budget 2022 may put tax laws on cryptocurrencies

Crypto Finance Technology

There is currently no legislation in India that oversees, regulates, or restricts dealing in cryptocurrencies. As a result, it is legal to sell, buy, trade, or manufacture cryptocurrencies and open a cryptocurrency exchange. However, given the concerns connected with cryptocurrency investing, it is expected that a measure would be filed in Parliament’s Winter Session to either prohibit or regulate cryptocurrencies. This did not happen, and the government is now likely to take up the issue during the Budget Session.

A regressive tax scheme might be implemented if the government does not restrict Indians from trading in cryptocurrencies. Cryptocurrencies should be taxed as follows, based on the size of the market, the quantity, and the risk involved.

Increased tax rate

Crypto profits should be taxed at a greater rate by the government. A 30% tax rate comparable to that applied to the lottery, game show, and puzzle winnings should be implemented for revenue derived from the sale of cryptocurrencies.

Considered as a Capital asset

Cryptocurrencies might be considered capital assets if acquired for investment purposes by taxpayers, according to Section 2(14) of the Income-tax Act 1961. As a result, any profit realized from the transfer of a cryptocurrency will be taxed as capital gains. If the taxpayer’s cryptocurrency transactions are considerable and frequent, the taxpayer should be considered a cryptocurrency trader. The proceeds from selling cryptocurrencies will be taxed as business income in this situation. The government should also define the term “cryptocurrency” to clarify that it is neither a currency nor a legal tender.

Losses should not be permitted to be deducted from other sources of income

The bitcoin market is highly volatile and unpredictably unpredictable. The value of virtual currencies is highly unpredicted. In light of these uncertainties, and to discourage investment in virtual currencies, the government should not allow loss on cryptocurrency sales to be offset against any other income. Furthermore, it should not enable losses from cryptocurrencies to be carried forward and offset against future earnings from cryptocurrencies.

Provisions for TDS/TCS

It is proposed that the government impose new TDS and TCS requirements on the sale and acquisition of cryptocurrencies to capture the financial footprint of those who trade in cryptocurrencies. Crypto exchanges that facilitate cryptocurrency sale/purchase transactions should be required to deduct and collect tax at the source. Small investors should be exempted, and the government should set a tax deduction and collection threshold.

Using SFT for reporting

The Statement of Financial Transactions (SFT) is a reporting mechanism that requires selected organizations to disclose information to the IRS concerning critical financial transactions. According to the recommendations, the sale and purchase of cryptocurrencies should be included in the Statement of Financial Transactions. Similar reporting of sales and purchases of shares and units of mutual funds is already done by trading businesses.