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What is Cryptocurrency?
The term "cryptocurrency" refers to a type of digital asset. The term is called so because the transactions are highly encrypted, ensuring that they are safe. Unlike traditional currencies, which are regulated and controlled by a central body, it is decentralised. A cryptocurrency's supply is limited, and it is sometimes compared to precious metals such as gold and silver.
How is Cryptocurrency created?
Cryptocurrency is created by mining, which is a process in which powerful computers solve extremely complicated tasks in exchange for a reward for completing successful cryptocurrency transactions. The trade of bitcoin results in the introduction of new cryptocurrencies into the market.
The Cryptocurrency Market
The cryptocurrency market is worth a massive $1.7 trillion. Currently, there are over 17,000 cryptocurrencies listed on the exchanges, and this figure is only going to grow. However, in India, it has been primarily remained controversial since its inception due to its decentralised nature, which means it operates without the use of any intermediaries such as banks, financial organisations, or central agencies.
How do I invest in cryptocurrency?
You'll need a "wallet" that can store your cryptocurrency to buy cryptocurrencies. In addition, you need to ensure that KYC is successfully done in the account to be eligible for purchasing cryptocurrency. In general, you open an account on a cryptocurrency exchange and then verify it and use real money to purchase cryptocurrencies like Bitcoin or Ethereum.
Taxation on Cryptocurrency
In the budget 2022, new rules related to the taxation of cryptocurrencies have been introduced. It is kept at a flat 30% on income from the transfer of digital assets such as cryptocurrencies. The tax shall be paid by the individual who has received any profit on cryptocurrency transactions irrespective of whether the gain is short term capital gain or long term capital gain.
Are Exemptions Available for Cryptocurrencies Transaction profit?
No deductions are allowed except for the cost of acquiring digital assets. This means that a taxpayer cannot claim deductions and exemptions on the profit earned from the purchase and sale of cryptocurrencies.
Can I offset losses accrued on Cryptocurrencies transactions?
Long-term capital losses can be offset against long-term capital profits under existing tax laws. It exempts taxpayers from paying long-term capital gains taxes. However, in the case of crypto revenue, this will not be possible. Losses from the sale of digital assets cannot be offset by other income. It will be treated as a separate class of asset
Is there any TDS deduction?
Yes, 1% TDS will be deducted. In addition to TDS deductions, gifts of digital assets are also taxed on the recipient's hands.
Frequently Asked Questions
Q- Are NFT (Non-fungible tokens) and cryptocurrency the same?
NFTs, or non-fungible tokens, are cryptographic assets on the blockchain that include unique identification codes and metadata that identify them from one another.
Q- Are cryptocurrencies a good investment?
Cryptocurrencies may appreciate in value, but many investors regard them as speculative investments rather than long-term investments. It should be noted that a currency needs stability.
Q- Is Cryptocurrency legal in India?
Currently, there is no regulation or any kind of ban on cryptocurrencies in India. After the budget 2022, it can be said that virtual assets like cryptos will not be banned in India but treated as another asset class. However, it is not yet clear and the recognition of digital assets under income tax is not akin to granting legal status.
Q- Will I be taxed if I give someone a Bitcoin?
No, according to the Finance Minister, only the individual who receives cryptocurrency would be taxed. Section 194S of the Income Tax Act was added to bring such transactions into the reporting system. A rate of withholding of one per cent has been recommended. Such provisions are proposed to take effect on July 1, 2022.
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