Income From Virtual digital assets (VDA) will be taxable at the rate of 30%.

Cryptocurrencies fall under the definition of Virtual Digital assets. Explained in the end.

Deduction of Expense

No deduction in respect of any expenditure (other than the cost of acquisition) or allowance or set-off of any loss shall be allowed to the assessee under any provision of the Act while computing income from the transfer of such asset.

For example - You purchased cryptos worth ₹ 1,00,000, sold them for ₹ 1,50,000. Suppose you also paid some amount of ₹ 5,000 as a fee for maintaining your crypto account.

Your profit is ₹ 50,000 and it will be taxable @30% Flat. ₹ 5,000 paid as the fee will not be allowed as a deduction. Only the cost of Acquisition of ₹ 50,000 will be allowed as a deduction.

Set-off of losses

No set-off of any loss arising from the transfer of virtual digital assets shall be allowed against any income computed under any other provision of the Act and such loss shall not be allowed to be carried forward to subsequent assessment years.

In simple words, if there is a loss on the transfer of a virtual digital asset, it will be a dead loss and it cannot be used to reduce or set off from any other income.

For example, your income under salary head is ₹ 10,00,000 and your loss in crypto is ₹ 2,00,000 you cannot say that your income is ₹ 8,00,000.

Applicable from 1/4/2022

All these changes are applicable from 1/4/2022 onwards.

TDS on cryptocurrency - Section 194S

Section 194S has been inserted to provide for deduction of tax on payment for the transfer of virtual digital assets to a resident at the rate of one per cent of such sum.

No tax is to be deducted in case the payer is the specified person and the value or the aggregate of such value of the consideration to a resident is less than Rs. 50,000 during the financial year.

In any other case, the said limit is proposed to be Rs. 10,000 during the financial year.

Specified Person

For the purposes of the said section, it is proposed to provide that 'specified person means a person:

being an individual or Hindu undivided family whose total sales, gross receipts or turnover from the business carried on by him or profession exercised by him
does not exceed one crore rupees in case of business or fifty lakh rupees in case
of the profession, during the financial year immediately preceding the financial year in which such virtual digital asset is transferred;
being an individual or Hindu undivided family having income under any head
other than the head 'Profits and gains of business or profession'

Gifting of virtual digital assets

Virtual digital assets as a gift will be taxable and are included in the definition of property.

If the aggregate value along with other moveable property without consideration exceeds ₹ 50,000 then the entire amount will be taxable.

If received for consideration and the difference between consideration and fair market value exceeds ₹ 50,000 then also the entire amount will be taxable.

Meaning of Virtual Digital Asset -

a virtual digital asset is proposed to mean

A.

any information or
code or
number or
Token
- (not being Indian currency or any foreign currency),
generated through cryptographic means or otherwise, by whatever name called,
providing a digital representation of value which is exchanged with or without
consideration, with the promise or representation of having inherent value, or
functions as a store of value or a unit of account and
include its use in any financial transaction or investment, but not limited to, investment schemes and
can be transferred, stored or traded electronically.

Cryptocurrency will fall in the above meaning.

B.

Non-fungible token and;
any other token of similar nature are included in the definition.

C.

any other digital asset, as the Central Government may, by notification in the Official Gazette specify:

Provided that the Central Government may, by notification in the Official Gazette, exclude any digital asset from the definition of the virtual digital asset subject to such conditions as may be specified therein.

Basically, Central Government has full power to declare something as VDA, Also government can exclude anything from the definition of VDA.

Updates

The government has proposed to issue a Digital Rupee, or Central Bank Digital Currency (CBDC), in the fiscal year 2022-23. Additionally, the Budget also proposed imposing a tax of 30 per cent on virtual assets, effectively legitimising trading of private cryptocurrencies and non-fungible tokens. This is broadly in line with the Centre’s plans to have a fiat digital currency while disallowing the use of private virtual coins as legal tender. -
Source - https://indianexpress.com/article/explained/union-budget-2022-cryptocurrency-taxation-digital-rupee-explained-7751213/

Neeraj Arora

Tax on Cryptocurrencies In India 2022