2021 was a big year for cryptocurrency, with everything from laser eyes to record highs. Suppose you’re among the more than 10% of Americans who traded cryptocurrencies in the past year. In that case, you probably have questions about how your transactions and other cryptocurrency activities will affect your taxes.
Each of these transactions has different tax ramifications, and U.S. taxpayers are expected to record cryptocurrency sales, conversions, payments, and income to the IRS and state tax authorities as appropriate. Learn when your cryptocurrency is taxed in this article and how your actions may affect your taxes. Let’s start now.
The new tax on crypto exchange law’s adoption has decreased cryptocurrency trade volume on Indian exchanges. The new tax law has imposed a flat 30% tax on all gains made from virtual digital assets, including cryptocurrency. Furthermore, no set-offs, carryovers, or deductions are permitted.
Nomics, a cryptocurrency data aggregator, reports that trade volumes on Indian cryptocurrency exchanges like CoinDCX, WazirX, and ZebPay have sharply decreased since April 1.
India has no regulation of cryptocurrencies or non-fungible tokens (NFTs). The Reserve Bank of India (RBI) attempted to ban cryptocurrencies in 2018. Still, the Supreme Court struck down the proposal, placing cryptocurrencies in a legal limbo that is neither formally unlawful nor legally acceptable. NFTs suffer from the same ambiguous legal status as cryptocurrencies but do not seem to have drawn the same level of regulatory ire.
Although there have been rumors of a comprehensive cryptocurrency bill, none of these have been made public, and it is still unknown how the Indian government would handle cryptocurrencies. There doesn’t seem to be any current effort to regulate NFTs substantively. A new tax framework has been put in place to tax gains and/or income from virtual digital assets (VDAs), which include cryptocurrencies, NFTs, and similar tokens, as well as other assets that the government may designate. At the same time, it continues to consider its position on cryptocurrencies and NFTs. As a result, under the Income Tax Act of 1961, there is now a tax of 30% plus surcharge and cess on the transfer of any VDA, such as Bitcoin or Ethereum (Income Tax Act).
The Income Tax Act prohibits the set-off of losses from transfers of VDAs against income or gains from other VDAs. For instance, if someone were to sell an NFT and suffer a loss, the loss could not be offset by a profit by transferring another VDA. As an example, if A sells an NFT artwork for a loss of INR 10,000 and subsequently sells Ethereum units for a profit of INR 50,000, A would be subject to tax on the entire INR 50,000 profit from the sale of Ethereum and would not be able to offset the INR 10,000 loss on the NFT.
In essence, gains and income from VDAs are taxable under the Income Tax Act, but no relief is offered when losses are incurred. As a result, VDAs are treated differently from most other assets in India.
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