The degree or rate of taxation directly affects the net returns in the hands of the investors. Therefore, taxation is one of the key factors that have to be considered while making an investment decision. Among many dynamic investment options available today, cryptocurrencies are the latest and the most trending one.
The volume of transactions and investments in cryptocurrency has been increasing for quite some time. It can be attributed to the growing investor awareness and risk-taking ability. This has ultimately prompted the government to introduce structured taxation for cryptocurrency and also a means to regularise it.
Given below is the meaning of cryptocurrency, its taxation along with the meaning of the cryptocurrency tax calculator and its related details.
What is cryptocurrency?
Before proceeding any further, let us understand the basic meaning of the term cryptocurrency. Cryptocurrency is a digital asset that can be bought and sold or traded on a digital platform. The investment of an investor in any cryptocurrency is stored in a digital wallet which can be accessed through a private key only. The digital asset itself is made up of a unique code that cannot be altered and hence it makes it easier to track, store and trade.
How are cryptocurrencies taxed in India?
Owing to the increasing popularity of cryptocurrency in India, the government has introduced taxation on cryptocurrencies in the budget of 2022-23. According to the amendment in the budget of FY 22-23, cryptocurrencies will be taxed in line with any income earned from horse racing or lottery winnings as per provisions of the newly introduced section 115BBH.
According to section 115BBH, tax on income from cryptocurrencies will be levied at a flat rate of 30%. For this purpose, the income from cryptocurrencies will be calculated by reducing the cost of investment (without the benefit of indexation) from the net proceeds received by the investor. Also losses from one cryptocurrency like Ethereum/Bitcoin cannot be set off against profit from other crypto currencies.
Taxpayers will have to further pay a surcharge (if applicable) and cess at 4% on the tax derived under this section to compute the final tax liability.
If investor A invests in cryptocurrency at the cost of Rs. 50,000 and sells them at Rs. 75,000, the net gains for investor A is Rs. 25,000. Investor A will be liable to pay tax at the flat rate of 30% on Rs. 25,000 which comes to Rs. 7,500. Cess at the rate of 4% will be levied on the basic tax liability of Rs. 7500 which comes to Rs. 300. Therefore, the final or the total tax liability for investor A is Rs. 7,800 on the net gains from the sale of cryptocurrency.
What is a cryptocurrency tax calculator?
Tax on cryptocurrencies is levied at a flat rate but the computation of the final tax liability can be difficult for average investors who may not be aware of the tax rules and the levy of cess. To ease the computation of tax on cryptocurrencies, investors can use the tool cryptocurrency tax calculator that is available on various websites working towards customer awareness and knowledge. This tool will not only help in reducing the time taken to compute the tax on cryptocurrencies but will also eliminate the element of human error.
How to use Fisdom cryptocurrency tax calculator?
The cryptocurrency tax calculator is available on the Fisdom website under the tab ‘Resources’ on the homepage. The steps to use the cryptocurrency tax calculator are mentioned hereunder.
- Enter the amount of net proceeds received upon sale of cryptocurrency.
- Enter the cost of investment (no indexation benefit is available under tax on cryptocurrency).
- The net gains of the investor will be displayed immediately on the screen along with the net tax liability.
- The investor will have to add cess at the rate of 4% on the tax liability and pay the same after filing the appropriate ITR.
- In case of loss on the sale of cryptocurrency, the investor does not need to pay any tax. Such loss will not be allowed to be set off against any other income of the taxpayer or carried forward for any number of years.
What are the benefits of Fisdom cryptocurrency tax calculator?
There are many benefits of using a cryptocurrency tax calculator. Some of such advantages are mentioned below.
- The cryptocurrency tax calculator provides a 100% accurate answer every time removing any possibility of human error
- Investors can use this tool free of charge and multiple times without any restrictions.
- The cryptocurrency tax calculator is a very simple tool and can be used by every investor who may not have any knowledge of the tax structure on cryptocurrencies.
- It is a time-saving tool and can compute the accurate tax liability in seconds of providing the inputs.
Cryptocurrency is one of the most favoured investment options, especially by the young and aggressive investors who aim at making higher profits by taking higher risks. The tax on cryptocurrencies introduced by the government of India has removed any ambiguity on its tax treatment. The cryptocurrency tax calculator tool, therefore, can be used to simplify the process of computing tax liability without the hassles of manual computation as well as reducing the time taken for the same. It will also help in better tax planning for the taxpayers and budgeting their financial obligations in a better manner.
The applicable tax rate on cryptocurrency is 30% as per the provisions of section 115BBH.
Yes. The cryptocurrency tax calculator can be used multiple times to compute the tax liability of the same or multiple investments in cryptocurrencies.
Yes. Cess at the flat rate of 4% is to be mandatorily levied on the tax computed using the cryptocurrency tax calculator.
Yes. The cryptocurrency tax calculator is available free of charge for every investor on the Fisdom website.