Booking long-term capital gains on crypto assets by March 31 can save you 10% tax

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The 2022 budget clarified that a 30% tax would be payable on capital gains from crypto assets beginning April 1, 2022. However, the manner in which tax is payable on such gains for the current fiscal year, c i.e. fiscal year 2021-22, is still a gray area with experts holding different views. A widely held view is that capital gains tax may be paid on such gains in that year in accordance with the income tax laws which apply to capital gains. Another view is that the 30% tax proposed in the 2022 budget on these gains must be paid even in the current fiscal year to avoid any dispute over it later. One thing that most experts agree on is that there is a lack of clarity on this. However, if one pays tax on these gains in the current year under the first view (treating them on par with capital gains on securities), then one could save 10% of tax reserving long-term crypto gains by March 31, 2021 versus reserving gains in fiscal year 2022-23.

According to an expert opinion, capital gains tax realized on the sale of crypto assets held for 36 months or more can be paid at the rate of 20% with indexation for the current financial year. From 1.4.2022, a direct tax of 30% would be due on these without any benefits such as indexation or deductions other than the cost of acquisition.

However, if the current year’s crypto gains are short-term in nature (i.e. the asset has been held for less than 36 months), the tax payable on them (if it is treated as capital gains) would be consistent with your income tax rate. If your margin income is in the 30% tax bracket, you will pay the same tax rate on the gains for that fiscal year as if the gains were realized in the 2022-23 fiscal year.

In line with the 2022 budget proposal, effective April 1, 2022, all gains made on virtual digital assets (e.g. cryptocurrencies, non-fungible tokens) would be taxed at a flat rate of 30% plus a surcharge and a 4% tax, regardless of how long the asset has been held. In addition, only the cost of acquisition will be authorized as a deduction and no other deduction or compensation for losses will be authorized. The tax rules on cryptocurrencies and other digital assets will come into effect from the new financial year, i.e. FY2022-23.

However, taxation of cryptocurrency sales for the current fiscal year was not mentioned in the 2022 budget.

ET Wealth Online spoke to chartered accountants and tax experts to find out how crypto investors can calculate their liability for the 2021-22 fiscal year with the latest budget proposals in mind. Here’s what they had to say.

Saraswathi Kasturangan, Partner, Deloitte India: Although the 2022 budget clarified the taxation rules relating to virtual digital assets (VDAs – read cryptocurrencies, NFTs, etc.), there is still no clarity on how these are taxed for fiscal year 2021-22 and prior years. In the absence of specific provisions, taxpayers took varying approaches depending on whether the income was in the nature of “business and professional income” or “capital gains”, and this was determined on the basis of the lines guidelines issued by the tax authorities regarding the sale of shares and securities. If the intention of the seller was to trade cryptocurrencies as a stock in the trade and this is also reflected in terms of trading volume and frequency, the income can be categorized as “business income “. This income (less related expenses) was taxable at the applicable rates for slabs. In addition, depending on the volume/turnover of the exchanges, it may be necessary to maintain books or be subject to a tax audit. However, if the intention of the seller was to hold the cryptocurrencies as an investment, the view taken might be that the sale of cryptocurrencies should be categorized as “Capital Gains/Losses”. Also, depending on the holding period of the fixed asset, i.e. the cryptocurrency, the gain/loss can be classified as long-term (more than 36 months) or short-term (36 months or less). Long-term gains are subject to 20% tax and the benefit of indexation is available. Short-term gains are taxable at the taxpayer’s normal applicable slab rates.

Chartered Accountant Naveen Wadhwa, DGM, Taxmann.com: The 2022 Union Budget provided clarification regarding the taxation of virtual assets (cryptocurrencies, NFTs, etc.) as of April 1, 2022. However, there is still no clarity regarding the taxation virtual asset earnings for fiscal year 2021-22. In such a scenario for the financial year 2021-22, the gains from these currencies can be treated like any other fixed asset, where all the other normal provisions of the Income Tax Act 1961 apply. will apply. Realized gains will be classified as long-term assets if held for more than 36 months. These winnings will be taxable at 20% plus applicable surtax and deductible. Otherwise, the gains would be classified as short-term capital gains. These will be taxable at normal slab rates plus applicable surcharge and tax. In addition, individuals should be able to claim all other provisions relating to the deduction of sales charges, indexing, rollover exemptions for long-term gains, loss carry-forward and offset, etc. However, gains from crypto assets may be taxed as business income. if the frequency of exchanges is very high.

Dr. Suresh Surana, Founder, RSM India: It is proposed that the provisions relating to the taxation of virtual digital assets (except TDS) come into force on April 1, 2022, i.e. the financial year 2022-23 and beyond. However, there is no clarity regarding the taxation of crypto-assets that taxpayers would have transferred/sold or given away until FY 2021-22. In the absence of specific provisions, different taxpayers have taken different positions. Most taxpayers who purchased the crypto assets treated the virtual crypto or digital assets as “investments”. In case the asset is held for a period longer than 3 years prior to the transfer, the resulting gain is treated as a long-term capital gain taxable at 20% u/s 112 IT law after benefiting of indexing. In the event of a short-term capital gain, this is taxable at the normal slab rates applicable to the person (which can range from 0% to 42.7%). Some taxpayers treated Crypto assets as business income or income from other sources and offered the gain. for taxation at regular tax rates. In the case of Crypto assets acquired through mining, some taxpayers felt that it was a self-generated asset and therefore not subject to tax. On the other hand, some taxpayers have been treated the same as business income. Further, in the case of a Resident and Ordinary Resident (ROR) taxpayer holding foreign assets (which would include Crypto assets issued outside India), he is mandatorily required to file his tax return in India, regardless whatever the limit. Further, such foreign assets must be disclosed in Schedule FA (Details of Foreign Assets and Income from any Source outside India). In the event that the crypto-asset is not a foreign asset, Schedule FA disclosure would not be required. Several taxpayers may not have filed the required declaration. As can be seen from the above, differing positions would lead to much litigation and it would be useful to allow taxpayers to declare this income or the differential amount now and pay the tax without interest or additional tax.

Abhishek Soni, CEO, Tax2win.in, an ITR filing website: Under the 2022 budget proposals, the gain on the transfer of the digital asset should be taxed at 30%. Furthermore, there will be no deduction of expenses and no compensation for any other loss will be permitted. These provisions will be applicable from April 1, 2022. The question now arises as to how the gain will be treated until March 31, 2022 since the new provisions will be applicable from the 2022-23 financial year. There could be two points of view on this situation because there is no clarity in the budget in this regard. According to one possible view, the gain made up to March 31, 2022 can be treated as a long-term capital gain and tax can be paid at the rate of 20% after deducting expenses. According to the other possible view, the tax should be paid at the rate of 30% as there were no specific provisions in the law in this regard and the tax can be paid according to the proposed new law. In our opinion, the tax should be paid at the rate of 30% to avoid any disputes in the future. Furthermore, the government is expected to provide the necessary clarifications in this regard.

Shalini Jain, Tax Associate, People Advisory Services, EY India: The government has clarified the taxation of the transfer of virtual assets from the 2022-23 financial year – nature of income, tax rate, deductibility of other expenses. However, there is still a lack of clarity on these aspects with regard to the taxation of these virtual assets for the current year, i.e. the financial year 2021-22.

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