Cryptocurrencies, which are classified as Virtual Digital Assets under Section 2(47A) of the Income Tax Act, are yet to be given recognition as legal tender by the central government in India. That’s the reason the Income Tax Department (ITD) is yet to issue any specific guidelines for taxes on crypto coins.
However, the taxation of Virtual Digital Assets (VDAs) is governed by key provisions in the Income Tax Act — Section 115BBH and Section 194S. These provisions mandate a flat 30% tax on gains from selling VDAs and 1% Tax Deducted at Source (TDS) on transactions.
The taxation of cryptocurrency in India has become a critical consideration for investors as the government adopts stringent measures to regulate the sector. With the imposition of a flat 30% tax on crypto gains, it is evident that authorities are taking a tough stance on what is viewed as a highly speculative and volatile investment avenue.
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Utkarsh Sinha, managing director of Bexley Advisors, sheds light on the rationale behind this tax policy and the nature of cryptocurrencies as an asset class. According to Sinha, “Crypto gains attract a punitively high, flat 30% tax on capital gains. This is designed to discourage speculation on crypto, which is seen as an inherently unsafe and highly volatile product with no avenues for consumer protection that the government can offer.”
Explaining the inherent nature of investment-grade assets, Sinha elaborates:
“Inherently, any assets deemed investment grade are backed by or represent an entity that produces cash in the real world. Debt products produce income that is used to service the debt (that is, to pay the interest and to ultimately return the capital). Similarly, equity products represent future income streams that one discounts and prices at current values. Commodities too are backed by a physical product that can be bought or sold.
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