UAE: The recent India Budget gives some clarification on how cryptocurrency will be taxed in the country if you have made investments or explored it as an asset class.
As a result of the rise of digital currency, there have been several theories about its legal status and its legal recognition, although some are still unclear.
Tax ambiguity on crypto:
Let us take a closer look at the Indian Budget, 2022, to understand how much it has provided clarity for a crypto-saturated landscape in the nation.
The recent India Budget has paved some clarity on how cryptocurrency will be taxed if you have invested in it or have been exploring it as an asset class. It seems that the Indian Budget has now clearly outlined a few guidelines and regulations for cryptocurrency enthusiasts as well as new crypto investors.
As a result of the latest regulation change, cryptocurrency experts are stating that speculation about the impending ban has ended. That is, a tax of 30 percent now applies to the transfer of cryptocurrencies within India.
VIRTUAL DIGITAL ASSET (VDA):
VDA can be defined as any cryptographically generated information, code, number, token, or any procedure that enables it to be transferred, stored or traded electronically.
(Cryptocurrencies are now also recognized as virtual digital assets, or VDAs, in the context of taxation).
While VDA is neither Indian currency nor any foreign currency, it represents value digitally, which can be exchanged with or without consideration. This includes non-fungible tokens (NFT) as well.
Digital tokens referred to as NFTs are non-transferable and can be traded with cryptocurrency. It is possible to verify the authenticity and ownership of NFTs on a blockchain. In addition to digital art, images, videos, text, music, and even virtual real estate and in-game items may be bought and sold in NFTs.
Are digital assets considered legal assets under income tax laws? If so, how does that work? More importantly, how does this affect investors? When thinking about buying crypto in India, these questions very commonly come up. Here we'll answer them all.
How are crypto taxes calculated in India?
For calculating taxes on crypto income, you should allow only the acquisition costs as a deduction.
It basically means that no crypto expenses, such as transactional costs, interest costs involved with borrowing, and so on, are permitted to be deducted.
Taxes are not imposed on crypto earnings up to Rs250,000 (12,00088 Dh). Those who earn more than this threshold are taxed.
Will I be taxed if I incur a loss on a crypto transaction?
Suppose you lose money when you trade a certain crypto asset like Bitcoin and gain profits when you trade another, such as Ethereum.
Is it possible to offset Bitcoin losses against Ethereum gains in such a situation, thereby reducing the taxable capital gains on the crypto assets? Certainly not.
It is not possible to set-off any crypto amount transfer loss against other income, nor shall such losses be carried forward to the next tax year.
A 'LOSS BEING SET OFF AGAINST OTHER INCOME' MEANS WHAT?
Adjusting losses against profits or income means adjusting losses against the current year's profit or income. This is commonly done to reduce the tax owed on any investment gains made by investors.
It is generally possible to carry forward losses that are not set off against income in the same year to set off against income in the following year.
Additional information on Cryptocurrency in India:
In India, there are still some ambiguities regarding the taxation of crypto assets, according to analysts. Despite the fact that taxation of transfers of this asset has been clarified, there is no clarity regarding taxation of activities such as the development and creation of cryptocurrencies in India.
Dubai-based tax experts examine further how it is unclear how a person would be taxed if they paid for a good or service with cryptocurrency in India, such as a mode of payment or sale of cryptocurrency. This raises further questions as well.
It is also unclear whether or not the purchasers of goods or the recipients of services will be required to pay taxes separately on this transaction when it is considered a 'transfer' of the crypto asset.
In addition, it is important to determine whether the seller of goods or the provider of services, who accepts crypto as a payment option, will be required to deduct taxes (TDS) from the payment received.
TAX DEDUCTION AT SOURCE (TDS)
A TDS MEANING IS THE PERSON RESPONSIBLE FOR MAKING SPECIFIED PAYMENTS OWES A CERTAIN PROPORTION OF TAX TO THE RECEIVER BEFORE MAKING FULL PAYMENT.
Experts also emphasize the importance of keeping in mind that in India, Crypto-Currencies are mostly purchased and sold using foreign currencies.
Gains or losses will fluctuate accordingly if the value of the rupee increases or decreases. However, how will forex fluctuation-related gains or losses be taxed?
Globally, governments have taken varying positions towards crypto assets. China, for example, has outright banned digital assets; countries like El Salvador recognize them as legal tender.
Crypto-friendly countries are either incorporating amendments to their existing tax codes or passing a separate law pertaining directly to such assets.
Several provisions in Singapore's new crypto law prevent illegal activity and legalize crypto. The profit derived from trading in digital tokens is taxed on the income of businesses engaged in buying and selling digital tokens.
Taxes do not apply to gains derived from the sale of long-term investments held as digital tokens. Therefore, Singapore treats such digital assets as capital assets, while India does not.
Cryptocurrency is also considered a capital asset in the US and Canada. Any income earned from these assets is taxable. The Canadian government has a system in place to track crypto investments and ensure they are reported accurately.
Taxes on crypto gains are imposed by the UK based on the nature of the transaction. Similarly, Crypto has primarily been considered a capital gain for tax purposes by the Australian government.
The taxation of cryptocurrencies is somewhat relaxed in some countries like Germany and Portugal. In Germany, cryptocurrency is considered a private asset, responsible for individual income tax and not capital gains tax unless it is sold during the year in which it was purchased.
INCOME TAX AND CAPITAL GAINS TAX:
Taxes are based on how much income you make during the financial year. Capital gains are taxed depending on how long you owned the asset. There is a lower tax rate on long-term capital gains than on short-term capital gains.
Portuguese tax laws only apply to crypto income accrued by professional traders. Cryptocurrency exchange for another currency is tax-free, so investors who buy or sell cryptocurrencies won't have to pay taxes on their capital gains.
Conclusion
An investor interested in investing in cryptocurrency must first understand the risks involved with it, and then choose the exchange on which to transact in the digital currency of his choice.
CREBACO, research, rating, and intelligence firm focused on cryptocurrencies based in India, identified crypto assets as worth $15 billion (Dh55 billion) in a report. There are over six million crypto enthusiasts living in India, or 0.5 percent of the nation's population based on the report. Those who earned money abroad and invested it both at home and abroad are included here.
The cryptocurrency analysts predict that India will pass a national regulation for digital assets to regulate them under a standalone law. Hence, no regulated entity can do business with cryptocurrencies until and unless the regulation permits it.
Considering that experts are evaluating crypto's potential to become the future currency throughout the world, further clarifications will enable traders and investors to avoid any adverse repercussions in the country. However, this needs to be monitored.
Despite this, crypto experts continue to recommend that anyone who is interested in purchasing cryptocurrencies, including Bitcoin, should have a five-year time horizon and have a small allocation in their portfolio. If the price of Bitcoin were to remain low for a long period of time, say five or ten years, it would be somewhere between $100,000 (Dh367,000) and $500,000 (Dh1.8 million).
Therefore, you should be aware that massive gains are often accompanied by incredibly high risks.