Staking, mining, lending, borrowing, airdrops, forks, wallet transfers, P2P transfers, gambling, giving, contributions, and other sources of revenue are not addressed in the Union Budget 2022.
The Indian government included tax implications for cryptocurrency for the first time in the Union Budget 2022, whereas the US Internal Revenue Service (IRS) addressed cryptocurrencies for the first time in 2014. Let’s look at the variations in how cryptocurrencies are taxed in different nations.
Classification of Crypto Assets
The government designated crypto assets as “virtual digital assets” in Budget 2022. Virtual digital assets are not regarded the same as regular assets, despite the fact that they are defined as assets. A new income tax provision has been included for the taxation of virtual digital assets, which states that earnings derived from the transfer of crypto assets shall be taxed at 30%. Except for the cost of purchase, no deductions are permitted from the asset’s sale price.
Cryptocurrencies, on the other hand, are recognised as capital assets in the United States. As a result, when a person sells cryptocurrencies for a profit, he or she may be subject to tax, depending on whether the assets are long-term or short-term crypto assets. Assets sold after one year after acquisition are regarded as long-term capital assets under US law. Long-term investments are taxed at a reduced rate. Short-term capital assets, on the other hand, are assets that are sold within a year after acquisition. Because virtual digital assets are not treated as capital assets under Indian tax law, crypto investors are not entitled for indexation advantages if they retain the assets for a long time and must pay the full 30% tax rate regardless of the length of time they hold them.
Furthermore, under US tax rules, losses from crypto assets can be claimed and offset against other kinds of income. Furthermore, any unadjusted loss might be carried forward and offset future investment gains. The Indian Income Tax Act provides a similar approach for losses suffered from the sale of capital assets; if a loss is incurred from the sale of capital assets, it can be offset against the gain on sale of capital assets, subject to certain circumstances. Any unadjusted loss can be carried forward for up to eight years to offset future capital gains. However, if a crypto investor loses money on a sale, they are not eligible for this incentive.digital assets that are virtual The Indian income tax law treats earnings or losses from virtual digital assets in the same way it treats gambling, horse racing, and lottery prizes. Gambling and lottery profits are also taxed at a flat rate of 30 percent with no deductions, and there is no set-off against other income in the event of a loss.
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Other Taxation Rules
The budget also allows purchasers to deduct 1% TDS on the transfer of virtual digital assets if the selling value exceeds a certain threshold. The transferor is responsible for deducting and depositing the TDS amount before releasing the consideration, according to the budget. Buyers will not see all of the seller’s data if the transaction is done through best crypto exchanges, so there is still some ambiguity on the compliance front.
Furthermore, the gift of crypto assets will be taxed in the beneficiary’s hands. The definition of specified movable assets is expanded to include virtual digital assets. As a result, if the fair market value of the gifts received exceeds the law’s threshold level, they will be taxed. Furthermore, the simple interpretation of the budget amendment implies that gifts received from family or received on specified dates are tax-free.
Receiving bitcoin as a gift is also a non-taxable occurrence under US tax law, since it does not involve withholding tax at the time of payment of consideration for the crypto asset (donee). The beneficiary is exempt from paying tax or reporting it on their tax filings. The recipient, on the other hand, will have to pay capital gains taxes if the gift is sold in the future. However, if the value of the crypto assets provided exceeds a particular limit, the person who gives the gift must declare it.
Received Crypto Assets as Payments in Business Transactions
According to US law, every transaction in which crypto assets are used to acquire goods or services is considered an exchange of crypto assets for goods or services. If the value of such assets exceeds the amount paid for them, the taxpayer is liable to pay capital gains tax.
In addition, if a crypto asset is received as payment for a commercial transaction, the fair market value on the day and time of receipt is recognised as income and is taxable at ordinary tax rates.
However, the government has not precisely stated the case where crypto is accepted in place of cash in the Union Budget 2022. Virtual digital assets are not currencies, according to the government. However, the word ‘transfer’ has not been defined for virtual digital assets in the Income Tax Act, whereas it is fully defined for capital assets. The law must define ‘transfer’ and determine whether it applies to transactions in which products or services are acquired using cryptos. If the legislation is clarified to include such transactions under the word ‘transfer,’ then the TDS provision will apply, requiring a person transferring crypto to deduct tax at source (TDS) since a transfer has occurred. A tax will be imposed in the case of such an occurrence.
Furthermore, there is no guidance on how firms should declare income from cryptocurrency payments. It’s possible that firms may be required to disclose income for the fair market value (FMV) of crypto received as payment for products and services. When the company sells these cryptos or transfers them in any way, it is considered a crypto transfer event, and tax may be due on the transaction. The government has not stated how to value crypto assets received as payment in a commercial transaction.
Tax Implications for Defi or Other Use Cases of Crypto
Staking, mining, lending, borrowing, airdrops, forks, wallet transfers, P2P transfers, gambling, giving, contributions, and other sources of revenue are not addressed in the Union Budget 2022.
However, if you earn crypto assets by mining them or get them as a promotion or payment for products or services in the United States, it will be considered conventional taxable income. At your ordinary income tax rate, you must pay tax on the whole fair market value of the cryptocurrency on the day it is received.
