There has been a recent proposal of the Government to impose a flat 30% tax on income from crypto as well as other virtual digital assets.
From the taxation perspective, mutual funds and stocks are more attractive. Short-term capital gains from the sale of equity shares or equity-oriented mutual funds are taxed at a flat rate of 15%.
Other long-term capital gains are taxable at the rate of 20%, with indexation benefits as well as short-term capital gain, which is taxable as per the applicable slab rate.
The Uncertainty of the Crypto Market
In Budget 2022, the taxation of crypto is introduced. It is proposed to tax income from crypto at a flat 30%, without allowing deduction of expenses, except for the cost of acquisition.
Loss from crypto is not allowed to set off from any other income, and it cannot be carried forward either. Due to the uncertainty of the cryptocurrency market, the possibility of large gains will depend on various unknown factors, which are beyond the knowledge and overall control from the perspective of investors.
Earlier this month, Colorado announced that it would start accepting Bitcoin for tax payments by summer.
On the Flipside
- In a similar way to mutual funds, large gains have already been realized by long-term cryptocurrency investors up to this point.
Why You Should Care
Such a high tax on earnings will effectively mean that small crypto investors with little money or smaller investment periods might not be able to make meaningful income from cryptocurrencies as a result of this.
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