Why tax on cryptocurrency is so high?

First lets understand what are the taxes on cryptocurrency & then come to why?

Budget 2022 tax announcements for cryptocurrency in India are -

1. Income (Any gains or losses made from a crypto asset held less than 12 months / Financial year) from any transfer of crypto, even gifts, would attract a 30% tax
2. Investors will also have to face additional 1% TDS (Tax Deducted at Source) on digital asset transfers above a certain threshold, which will allow it to capture transaction data with the government.
3. In addition, investors cannot get any deductions and won’t be allowed to set off losses from transfer of such assets against any other income.
4. As a disclosure requirements the taxpayers will have to report income from crypto through a separate column while filing I-T returns.
5. RBI-backed ‘digital rupee’ to be launched in FY23.

Now, Let’s understand Why such huge tax on crypto?

The higher tax rate also hints at tougher crypto regulations & government wants people to be aware of the higher volatility & risk into crypto market before investing into crypto.

• Lets, take an example to understand the tax system on crypto trading.

I assume that you have booked a profit of Rs.100 earned by trading crypto on any crypto exchange.

So, the tax on Rs. 100 profit is :

Net Profit = Rs.100 — (Net Loss, if any in current financial year)

(I assume you have Net Loss = Rs.0. So, Net Profit = Rs.100 — Rs.0 = Rs.100)

Tax on Net Profit = ( 30% of Rs.100 + 1% of Rs.100 ) = ( 0.3 * Rs.100 + 0.01 * Rs.100 ) = Rs. 31

So, your Tax on your Net Profit is Rs. 31

Thanks for reading till the end! Hope it helps…

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