As the new tax regime comes into force on April 1, the Income Tax department will rely more on voluntary disclosure on acquisition cost of virtual digital assets (VDA), or cryptocurrencies. But in case of a doubt, the disclosures will be thoroughly reexamined, reported BusinessLine.
“Barring ₹60,000-70,000 crore of self-assessment tax, the entire direct tax collection focus on voluntary compliance and VDA will not be an exception,” said the official.
He also said the tax department will rely on the price of acquisition and income earned mentioned by the investor for taxation, wrote Business Line.
The new taxation regime for VDA is part of the Finance Bill, 2022, which will be taken up for passage during the ongoing session of Parliament. Once this happens, the Central Board of Direct Taxes (CBDT) will release detailed set of rules.
The new regime has two elements — taxing the income at the rate of 30 per cent from FY23 (AY24) starting on April 1, and deducting tax on payment for transfer of VDA at the rate of 1 per cent with effect from July 1.
What experts say
The taxpayer will pay tax on income computed from transactions in cryptocurrencies on an annual basis. It does not have to be computed based on a particular class of cryptocurrency or for each cryptocurrency individually.
The taxpayer should also keep a record, either in the form of a contract note issued by the respective exchange or any other document, to support the deduction of acquisition cost. “Other than the cost of acquisition, deduction of any other expenditure is not allowable. Further, the proposed provision does not allow setoff of loss from transactions in cryptocurrencies against other income of a taxpayer. But if the taxpayer has a loss from the sale of one cryptocurrency, it can setoff such loss against profits from another cryptocurrency,” L Badri Narayanan, Executive Partner, Lakshmikumaran & Sridharan Attorneys said while admitting that more clarity is required on this.
Neha Nagar, CEO of TaxationHelp.in, said the taxpayers must report crypto income whether on Indian or foreign exchanges, whether from trading, investing or farming, staking & ICOs..
“We need to pay 30 per cent flat tax on our crypto income and crypto transfers without deducting any expenses, except the cost of acquiring the crypto. Failing to report these might attract IT notice,” she said.
“As the provision stands today and unless these provisions are amended before becoming part of the IT Act, it will create chaos among crypto investors with respect to its compliance,” Narayanan said