Crypto Transactions- What is Crypto? & How Capital Gains applies to Crypto Transactions?

Introduction

Crypto Currencies have proved to be quite a thing in recent years. In simple language, crypto is nothing but digital currencies. It serves the same purpose as other forms of currencies i.e. to purchase goods and services. The main reason it has got all the limelight in the past few years is that it is decentralized in nature. It can be operated without any banks, financial institutions or central authorities and alike intermediaries. In this article we shall talk about “Crypto Currencies and Capital Gain” “What is Crypto?” What is Capital Gain?” and “How does Capital Gain on Crypto Transactions apply?”

What is Crypto?

Crypto is a virtual currency. It is a digitalize form of currencies that can be used as a normal currency to buy goods and services. Bitcoin, Ethereum, Litecoin, Dogecoin, Ripple, Matic, etc. are a few examples out of 1500 virtual currencies popular in the digital currency world these days.

What is Capital Gain?

Capital gain in simple terms is the increase in the value of the capital asset from the time of buying to the selling of the asset. Capital gain arises when one sells an asset for more than what is originally paid for it at the time of buying the same. Most of the assets that we own are a kind of capital asset. Be it real estate investment or investment made in the stock or bonds or some furniture. Recently in Budget, 2022, the Government decided to charge a 30% tax on the Crypto investors in India for the profits earned by them.

Related read: MAJOR IMPACT OF UNION FINANCE BUDGET  2022 – 2023

Capital Gains on Crypto Transactions in India

• The gains or profits earned from Crypto Transactions used to be considered either as “Business Income” or “Capital Gains” on Crypto Transactions when the Standard Income Tax Rules applied.
• However, from the 1st of April, 2022, The Government of India has decided to treat the gains/profits/incomes from crypto the same way as it does to lottery winning.
• That means, the Crypto Currencies in India shall be charged at 30% (31.2% if counted as lotteries).
• In Budget 2022, the Finance Minister announced and declared that “cryptocurrencies, non-fungible tokens and any other asset that are considered to be the ‘virtual digital assets’ shall now be subjected to gains tax, that would be similar to stocks in the equity market.”
• She further added that a tax at the rate of 30% needs to be paid on the profits earned from the transfer of crypto assets.
• However, there shall be no deduction allowed to be adjusted from the crypto asset’s sale price, except the cost of acquisition.

Capital Gains on Crypto Transactions in Other parts of the world

Capital gains on Crypto Transaction in the USA

• Cryptocurrency comes under the purview of the same tax regime as stocks in the USA i.e. capital gains tax.
• A capital gain is any gain or profit made on an investment.
• For example, one invests $150 in a stock and sells out the same once it reaches to a selling price of $180, here the capital gain would be $30.
• One of the biggest loopholes here is that there would be no capital gains until an asset is sold, hence, the super-rich might use the same to pay off loans without paying any Income Tax.
• The USA Federal Tax Rate on the Capital Gains on Crypto transactions (Cryptocurrency) ranges from 0% to 37%.

Capital gains on Crypto Transaction in the UK

• Just like the USA, the UK considers the crypto-currencies the same as the individual stock investment.
• If one buys and sells the crypto currencies as an individual investment, one needs to pay the capital gains tax on the profit so earned
• However, the UK allows a tax-free allowance for capital gains tax on Crypto Transactions up to £12,300.
• The tax rates on the Capital Gains on the Crypto Transactions are 20% for higher rate (40%) and additional rate (45%) taxpayers, and 10% for basic rate (20%) taxpayers, with some caveats.

Capital gains on Crypto Transaction in Germany

• Germany is a crypto tax haven country as in Germany crypto is considered as private money of an individual.
• In Germany, Crypto is not considered as monetary currency, commodities, or stocks.
• If you sell crypto currencies within 12 months of buying them in Germany, profits up to 600 euros are tax-free.
• However, Profits / Gains over 600 euros from selling bitcoins in Germany are subject to tax.
• That means that even if your profit is only 1 euro more than the non-taxable value, you’ll have to pay taxes on the entire profit.

Key Takeaways on Capital gains on Crypto Transactions in India (as suggested in the Budget, 2022)

• Any Income from the transfer of crypto, NFTs or any other Virtual Digital Assets shall be taxed at 30%.
• There would be no deduction, except the cost of acquisition, shall be allowed at the time of reporting income/gain/profit from the transfer of such Virtual Digital Assets.
• Any loss incurred from the Virtual Digital Assets cannot be set off against any other income.
• Virtual Digital Assets received as Gifts shall attract tax in the hands of the receiver.
• Also, it was declared that any losses incurred from one Virtual Digital Asset shall not be allowed to be set off against income from another digital currency.