In India, cryptocurrency has grown in popularity over the last couple of years as a trading and investment tool for a number of reasons. Over the past few years, the value of cryptocurrencies like Bitcoin, Ethereum, and Ripple has increased significantly, giving investors the chance to potentially make big returns on their investments. As an uncorrelated asset, cryptocurrency gives investors the chance to diversify their portfolios. In addition to conventional assets like stocks, bonds, and real estate, it offers another choice. Moreover, trading in cryptocurrencies takes place on a decentralized network that gives users access to a worldwide market and allows for round-the-clock trading all year long. Investors now have more freedom and flexibility to respond to market occurrences. The tax treatment of cryptocurrencies was unclear at first, and the Indian government did not accept them as legal money. But the scenario however changed in February 2022, when the annual budget was presented in the Indian parliament introducing Section 115BBH which makes the investors and traders in the crypto market obliged to pay a tax on the net gains made in the financial year just like from all other earning sources. However, reaching this stance was not as straightforward as we mentioned.
A brief history of the stance of India on Cryptocurrencies
As mentioned above, initially the Indian government did not recognize cryptocurrencies as legal tender, and there was a lack of clarity on crypto tax India. But with the unignorable popularity of cryptocurrencies, the Reserve Bank of India (RBI) finally issued a circular in 2018 ordering banks and financial institutions to stop doing business with enterprises associated with cryptocurrencies. Because of the resulting market uncertainty, some investors had trouble getting their money out.
A government committee put forth a draught bill in 2019 that intended to outlaw all cryptocurrencies in India and make any connected activities illegal. The bill, however, did not become law, and it was later made known that the government was mulling a more complex strategy for regulating cryptocurrencies.
Finally, Section 115BBH was introduced under the Income Tax Act of 1995 as Virtual Digital Assets Taxation Scheme. Section 115BBH was added by the Finance Act of 2022, and it will take effect in AY 2023–2024. According to the clause, the revenue from the transfer of the virtual digital asset (VDA) will be subject to a 30% tax rate. The cost of purchase is the only expense for which the taxpayer may claim a deduction. The loss resulting from the transfer of VDA cannot be offset against any other income (including capital gains, profits from businesses, salaries, or other sources of income), and it cannot be carried out to the subsequent years. The procedure to deduct the TDS on the transfer of VDA under section 194S is also provided by the Finance Act of 2022.
These policies are in their initial stages even now, because of which calculating taxes can become very tedious. This is where Binocs comes into the picture. Binocs can help you to calculate your tds on cryptocurrency in India. The software keeps updating its formulas and tools to help you keep up to date with the changing policies and get a completely simplified breakdown report of your tax obligations.