Crypto Tax in India - Key Points to Remember

 

Cryptocurrencies have gained significant popularity and traction worldwide in recent years, including in India. 

In India, the government introduced Section 115BBH in the 2022 budget, which imposes a 30% tax (plus surcharge and cess) on profits made from crypto trading. Additionally, a 1% Tax Deductible at Source (TDS) on crypto transactions was implemented. In this blog, we will delve into crypto tax in India and explore their implications for investors and traders.

 

Crypto Tax in India: Key Points to Remember

 

1. Tax Rate and Applicability: Section 115BBH imposes a flat 30% tax on profits made from crypto trading, starting from April 1, 2022. The tax is applicable to private investors, commercial traders, and anyone transferring crypto assets in a fiscal year, subject to certain conditions.

 

2. Nature of Income: Regardless of the nature of income (investment or business), the 30% tax rate remains the same. There is no distinction between short-term and long-term gains.

 

3. Expense Deductions: No expense deductions are allowed for crypto trading. Only the acquisition cost, which is the purchase price, can be deducted.

 

4. Loss Set-off: Crypto losses cannot be subtracted from crypto gains. Loss from any other source of income, such as business income, salary income, or house property income, cannot be set off against crypto income.

 

5. Carry Forward of Losses: There is no provision to carry forward crypto losses to future years to set off against crypto income.

 

Implications for Crypto Investors and Traders

1. Tax Calculation: The tax liability on crypto income is determined at the time of transfer or sale of the crypto asset. Unrealized gains from holding crypto assets are not taxable.

 

2. Limited Deductions: Unlike in stock and derivative trading, the government does not allow deductions for expenses like platform fees, broker fees, or internet charges. This reduces the flexibility for investors to offset their taxable gains.

 

3. Increased Compliance: The introduction of TDS on crypto transactions increases compliance requirements for both buyers and exchanges. Crypto exchanges are responsible for deducting 1% TDS on behalf of buyers and depositing it with the government.

 

JSON Schema for ITR 1 and ITR 4 got released

The Income Tax Department has released the JSON Schema of ITR 1 and ITR 4 for AY 2023-24 (FY 2022-23) on 11th April 2023.

To whom is ITR 1 applicable?

Individuals who are residents (other than ordinarily resident) and have a total income of up to Rs.50 lakh from salaries, one house property, other sources (interest, etc.), and agricultural income of up to Rupees Five thousand are eligible for the ITR-1 form. 

To whom is ITR 4 applicable?

Individuals, HUFs, and Firms (other than LLP) who are residents and have a total income of up to Rs.50 lakh, income from business and profession computed under sections 44AD, 44ADA, or 44AE, and agricultural income of up to Rupees Five thousand are eligible for the ITR-4 form.

Cost Inflation Index FY 23-24

Cost Inflation Index for the Financial Year 23-24 is notified by the CBDT on 10th April 2023.

It is 348.

Meaning? -> According to CBDT any asset which was of the value 100 rupees in the year 2001 is now worth 348 and the same to be done for determining calculation of cost for the purpose of taxation on capital assets.

Who is exempted from PAN-Adhaar Linking

 

Section 139AA of the Income Tax Act provides that every individual who has been allotted a permanent account number (PAN) as on the 1st day of July, 2017, and who is eligible to obtain an Aadhaar number, shall link his Aadhaar number with PAN.

Non-linking of PAN with a valid Adhaar will make your PAN will inoperative.

However, below mentioned people are not required to Link their PAN with Adhaar.

 

Ø Individuals residing in the states of Assam, Jammu and Kashmir, and Meghalaya;

Ø Individuals who is a non-resident as per the Income-tax Act of 1961,

Ø individuals who are eighty years old or older at any point during the previous year;

Ø Individuals who are not citizens of India.

Weekly Tax Gyan(W-07)

Form 26AS and IAS Update

Form 26AS will only display TDS/TCS data starting with Assessment Year 2023–24, according to an update from the Income Tax Department and an annual information release. Other information such as advance tax, self-assessment tax, rebate, and so forth, would be accessible only in the AIS.

FAQs on PAN-Adhaar Link

The Income Tax Department has issued FAQs on the PAN-Aadhaar Link. The FAQs are provided in the link mentioned below.

https://www.incometax.gov.in/iec/foportal/help/e-filing-link-aadhaar-faq

Income Tax exemption to IBBI u/s 10(46)

CBDT notifies Exemption to Insolvency and Bankruptcy Board of India with respect to certain specified incomes. The exemption is provided u/s 10(46) with respect to specified incomes listed below.

(a) Grants-in-aid received from Central Government;

(b) Fees received under the Insolvency and Bankruptcy Code, 2016 (31 of 2016);

(c) Fines collected under the Insolvency and Bankruptcy Code, 2016 (31 of 2016); and

(d) Interest income accrued on (a), (b) and (c) above.

 

 

 

Changes in presumptive taxation schemes - Budget 2023

 

The amendments in relation to presumptive tax laws in Budget 2023 are a welcome change and have been largely appreciated by the taxpayer community.

 

Currently, businessmen with annual turnover less than Rupees 2 Crores and specified professionals with annual gross receipts less than Rupees 50 Lakhs are eligible to opt for presumptive taxation under sections 44AD and 44ADA.

The limits of sections 44AD and 44ADA have been revised upwards to Rupees 3 Crores and 75 Lakhs respectively.

 

Section	Nature of Income	Limit till FY 23	Limit for FY 24 and onwards
Section 44AD	Business	2 Crores	3 Crores
Section 44ADA	Profession	50 Lakhs	75 Lakhs

 

The enhanced limit is applicable only if the entire amount of cash received during the year does not exceed 5% of total gross receipts/turnover.

What's included in Budget 2023 for startups?

 1.     Extension of the date of incorporation for eligible start-ups

Section 80-IAC of the Income tax act, 1961 provides tax holidays for an eligible start-up engaged in an eligible business.

An eligible start-up can claim a deduction of 100% of its profits derived from eligible businesses for 3 consecutive assessment years out of 10 Assessment Years.

The 10 assessment years have to be reckoned from the year in which the start-up is incorporated.

To be eligible for a deduction under this section, a start-up must have been registered on or after January 4, 2016, but before March 31, 2023.

This limitation period has now been increased by an additional year, until 31-03-2024. So, all eligible start-ups registered on or before 31-03-2024 would also be eligible for benefits under this section.

 

2.     The extension of the time period for carry forward and set-off of losses to 10 years from 7 years at present

Under section 79, if all of the company’s shareholders continue to own shares, the requirement of continuity of at least 51% shareholding is not applicable for an eligible start-up for setting off the carried-forward losses.

The losses incurred by an eligible start-up can be carried forward and set off against the profit for a period of 7 years from the year in which the entity was incorporated.

The Budget 2023 has proposed to increase this period to 10 years from the year in which the entity got incorporated.

Impact of Budget 2023 on Gold and other precious metals

The customs duties on goods made of precious metals like gold, silver, and platinum were raised by the Budget 2023.

The customs duty rate has gone up from 20% to 25%.

Additionally, the rate of duty on imitation jewellery has also been increased in this budget. 

The revised customs duties are as below.

Capital gains on Gold:

It is proposed that the conversion of physical gold into an Electronic Gold Receipt and vice versa would not be considered as a transfer. Hence these transactions will not attract any Capital Gain tax.

This move is to encourage investments in digital gold.

Limit of Section 269SS and 269T enhanced - Budget 2023

 

Sections 269SS and 269T deal with limitations on taking out and repaying cash loans that are greater than Rs 20,000 per year. It also stipulates a fine in case a loan transaction in cash is done in excess of Rs. 20,000 per annum.

This limit is enhanced to Rs. 2 lakhs per annum in Budget 2023. This enhanced limit is applicable only to

Ø Primary agricultural credit society

Ø Primary co-operative agricultural

Ø Rural development bank

 

As a result, there won't be any penal consequences under section 269SS if a deposit is accepted by these entities from its members and the amount of the deposit is less than Rs. 2 lakhs per annum.

Additionally, if a loan is taken from these entities by its members and the amount of the deposit or loan is less than Rs. 2 lakhs per annum, there won't be any penal consequences under section 269SS.

  

Furthermore, there won't be any penal consequences under section 269T, if a deposit is repaid back in cash by these entities to its members and the amount of the deposit is less than Rs. 2 lakhs per annum,

Additionally, if a loan is repaid back in cash by these entities to its members and the amount of loan is less than Rs. 2  lakhs per annum, there won't be any penal consequences under section 269T.

Threshold limit for cash withdrawal increased for Co-operatives - Budget 2023

 

According to section 194N of the Act, TDS has to be deducted if the aggregate sum of cash withdrawn by a person in FY exceeds Rs. 1 Crores. (This limit is 20 lakhs in case no ITR has been filed for all three previous AYs).

TDS will be deducted at 2% of cash withdrawn in excess of the limit(Rs. 1 Crores / Rs. 20 Lakhs) as stated above.

Relaxation has been provided to co-operatives with respect to the amount of cash that may be withdrawn with TDS being deducted.

This limit is enhanced to Rs. 3 Crores to Co-operatives. Now, Co-operatives may withdraw cash upto Rs. 3 Crores in a Financial Year without TDS being deducted.

A Big relief to MSMEs- Budget 2023

It is proposed to bring payments made to micro and small (MSME) businesses under the purview of section 43B of the Income Tax Act 1961.

The move is to encourage prompt payments to MSME businesses. 

As a result, expenditure can be claimed only when the payments are actually made to MSMEs. 

The expenditure can also be claimed on an accrual basis only if the payment is made within the time frame (Usually 45 days from the date of invoice) required by the Micro, Small and Medium Enterprises Development Act, 2006.

Changes in Personal Income Tax - Budget 2023

 It is now proposed that the New Tax Regime introduced in Finance Act 2020 will serve as the default tax regime. It is applicable to Individuals and HUFs. Additionally, this regime would take over as the default regime for AJP, BOI, and AOP (other than cooperative). Any Individual, HUF, AOP (other than a cooperative), BOI, or AJP may choose to be taxed under the old system if they do not want to be taxed under the new tax regime.

Tax rates under new tax regime

Total Income	Tax Rate
Upto Rs. 3 Lakhs	NIL
From 3 Lakhs to 6 Lakhs	5%
From 6 Lakhs to 9 Lakhs	10%
From 9 Lakhs to 12 Lakhs	15%
From 12 Lakhs to 15 Lakhs	20%
Above 15 Lakhs	30%

 

Tax rates under old tax regime

Total Income	Tax Rate
Upto Rs. 2.5 Lakhs	NIL
From 2.5 Lakhs to 5 Lakhs	5%
From 5 Lakhs to 10 Lakhs	20%
Above 10 Lakhs	30%

 

Enhancement of Rebate

Residents with total annual incomes up to Rs. 5,00,000 are now eligible for the tax rebate under section 87A under the old and new regimes. It is proposed to raise this rebate to Rs. 7,00,000 for assesses under the new tax regime.

Standard Deduction

Standard deductions of Rs. 50,000 for salaried individuals and family pensions of Rs. 15,000 are now only permitted under the Old Tax Regime. These two deductions would also be permitted under the new tax regime system.

Surcharge: The maximum surcharge rate is reduced to 25% from 37% for those who opt for new tax regime. No change in surcharge is proposed for those who opt to be under the old regime.

Leave Encashment: The exemption threshold increased from Rs. 3 Lakhs to Rs. 25 Lakhs.

Extension of the time period under Sections 54 to 54GB

 

In light of the Covid 19 Pandemic, the Central Board of Direct Taxes (CBDT) has allowed some flexibility regarding the compliances that tax payers must make in order to claim exemption under sections 54 to 54GB of the Income Tax Act,1961, via Circular No.01/2023, issued on 6th January 2023.

 

Compliance with investment, deposit, payment, and acquisition Purchase construction or any other required activity under section 54 to 54GB for which the date of compliance is between 01-04-2021 and 28-02-2022 may be completed on or before 31st March 2023.

GST DISCLOSURE IN TAX AUDIT REPORT - CLAUSE 44

 CBDT has added a new clause no. 44 to Form No. 3CD via notification no. GSR 666(E) dated 20^th July 2018.

This clause requires assessees who are required to get their accounts audited under section 44AB of the Income Tax Act,1961 read with rule 6G of the Income Tax Rules, 1961 to provide the break-up of total expenditure into expenditure relating to entities registered under GST and Expenditure relating to entities that are not registered under GST. Despite the fact that the notification was introduced in 2018, the applicability of the said clause was kept under abeyance until March 2022.

As a result, the aforesaid information has to be provided for all reports filed under section 44AB on or after 1^st April 2022.

The break-up of the expenditure has to be provided in the following manner.

Total Expenditure incurred during the previous year	Expenditure in respect of entities registered under GST				Expenditure relating to entities not registered under GST
	Expenditure relating to goods/ services exempt under GST	Expenditure relating to entities registered as Composition dealers	Expenditure relating to other registered entities	Total Payments made to registered entities
1	2	3	4	5	6

 

1.    Total Expenditure incurred during the year.

The total expenditure incurred during the previous year has to be provided under this column.

The total amount of expenditure irrespective of capital or revenue in nature has to be provided.

Though head-wise break-up of the expenditure is not required, it is recommended to provide the details of capital expenditure and revenue expenditure in separate row lines.

As the word used in column 1 is “Total Expenditure” incurred during the previous year, a question may arise as to whether the non-cash expenditure such as depreciation and amortization, actuarial valuation of gratuity, Provision of expenditure, and the expenses of like nature are to be included in this column. We may expect a clarification with this respect from the department.

It is also advisable to keep a reconciliation of total expenditure as shown in clause 44 and the total expenditure as debited to the statement of profit and loss.

 

2.    Expenditure relating to goods and services exempt under GST

The exempt supply shall include

a)    Goods or services attracting NIL rate of GST

b)    Goods or services supply of which is wholly exempt from the GST

c)    Non-taxable supply

 

3.    Expenditure relating to entities registered as Composition dealers.

The amount of expenditure as an inward supply from the composition dealers during the relevant previous year has to be declared.

 

4.    Expenditure relating to other registered entities

The total amount of expenditure as a supply from all registered GST suppliers except the details already provided in columns 2 and column 3 has to be declared here.

 

5.    Total Payments made to registered entities

The total payments made to all registered entities for the supplies listed in columns 2, column 3, and column 4 are to be reported here.

The question here is whether the payments made during the year can include payments for the opening balance as well or we are required to provide the information only to the extent of expenditure as shown in Column 1. The department may provide clarification in this regard.

Furthermore, the payments made to suppliers are inclusive of GST. A question may arise, whether the details as mentioned in Columns 1 to column 4 are to be provided inclusive of GST.

There is also a view that the total expenditure declared in columns 2 to column 4 may be declared in this column. However, we can expect clarification from the department in this regard as well.

 

6.    Expenditure relating to entities not registered under GST

All expenditure from the entities that are not registered under GST has to be declared under this column. 

✍

CA Ramakrishna Sanjay