Crypto investing: As new crypto tax rules kick in tomorrow, should you book profits?

Synopsis

The additional transaction tax of 1 per cent on all trades may discourage investors’ interest to trade as it might make it costly and difficult for high-frequency traders and day traders to operate in the space, said Vikas Ahuja, CEO, CrossTower India.

Calling it a historic moment in the evolution of the Indian crypto industry, Shivam Thakral, CEO of BuyUcoin said that this move will make the crypto market more organized and disciplined.New Delhi: The government of India’s new tax laws, announced in Union Budget 2022, will come into play from April 1, Friday, wherein any income from the transfer of any virtual digital asset (VDAs) shall be taxed at the rate of 30 per cent.

Calling it a historic moment in the evolution of the Indian crypto industry, Shivam Thakral, CEO of BuyUcoin said that this move will make the crypto market more organized and disciplined.

“Like every new law, crypto tax laws are also subject to testing and recalibration to protect the interest of all the relevant stakeholders of the industry,” he added.
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The government clarified that no deductions in respect to any expenditure or allowance will be allowed while computing such income except the cost of acquisition. Also, gains from the sale of one crypto asset can not be offset against the loss in another.

Avinash Shekhar, CEO, ZebPay said that as capital gains rates range between 10-20 per cent, it makes sense for investors to sell their crypto and book profits as their profits will be taxed at a lower rate.

“Post March 31, there will be no set-off of crypto investment losses against capital gain. Hence, investors can make use of tax-loss harvesting to reduce their tax burden. They can buy the same assets in the new fiscal,” Shekhar said.

Although not everyone is concerned about the new taxation laws coming into place.

Hitesh Malviya, founder, itsblockchain.com said: Crypto is an emerging market. The market will go through a couple of major swings in the near future. Investors should keep their positions in the market as long as they can enjoy peak profits.

“Value investors should not be worried at this stage and they should keep holding their positions for a couple of more years. Tax will be applicable only when they exit from positions, so it’s better to exit at peak profits,” Malviya said.

Calculation of the taxes
Crypto investors will have to pay an income tax of 30 per cent plus cess and surcharges from April 1. This treats the crypto investments similar to the winnings from horse races or other speculative transactions.

Investors will also be charged 1 per cent TDS on payments towards virtual currencies beyond Rs 10,000 in a year and taxation of such gifts in the hands of the recipient.

One should note that the provisions related to 1 per cent TDS will come into effect from July 1, 2022, while the gains will be taxed effective April 1.

According to market experts, the new taxation regime might be a walk on a tightrope for the crypto industry in India.

Infrastructure cost incurred in the mining of cryptocurrencies or any virtual digital assets will not be allowed as a deduction under the Income Tax Act, Minister of State for Finance Pankaj Chaudhary has said.

The additional transaction tax of 1 per cent on all trades may discourage investors’ interest to trade as it might make it costly and difficult for high-frequency traders and day traders to operate in the space, said Vikas Ahuja, CEO, CrossTower India.

Impact on volumes
Market experts believe that the new tax laws seem to be directed at actively ebbing crypto investments, and this will, of course, take a toll on overall trading volumes.

Malviya said the new tax regime will lead to a steep fall in the trading volumes. “It may reduce daily trading volume by half as the majority of them will make losses in the intraday trades. The money may move into stocks and forex”.

“High tax rates of 30 per cent, similar to the rates associated with gains from gambling, will dissuade investors from investing in crypto as opposed to traditional financial instruments, which attract significantly lower rates,” opined Shekhar. Presented By

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Updated: 03/31/2022 — 21:00