Taxation of Crypto Interest earned in India: Budget 2022

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#budget2022 Crypto Tax: Taxation on Interest 💰 earned in Cryptos 😎 Let’s put the tax hat 🎩 on and start analysing :) 🧵 #IndiaWantsCrypto #CryptoTax #BudgetBytes #blockchain

Intro to Crypto Interest products: @flintdotmoney: Interest up to 13% Interest on Stable coins (SC) @PillowFund: Interest up to 18% on SC and provides risk free exposure to DeFi. @VauldOfficial: Interest up to 12.68% on SC and Insured by Bitgo All are 🇮🇳 Startup’s :) (2/11)

Example: Mr.Amit purchased 1000 USDT (at ₹78 per USDT) from WazirX. He plans to invest this amount on Pillow fund and earn Interest. Let’s understand complete tax impact step-by-step: (3/11) #passiveincome

Guys, In S-3, Pls read Sec 115BBF as Sec 115BBH.. Sorry for typo 🥲

S-1: Acquisition of 1000 USDT - No tax nor TDS impact. S-2: Withdrawal of 1000 USDT from WazirX and deposit into Pillow fund wallet - No tax nor TDS impact Reason: Both wallets are owned by same Investor hence it is not a transfer as per Section 2(47) (4/11)

S-3: Pillow starts paying daily Interest and Amit invests for 1 year. Interest earned in full year = 180 USDT (1000 USDT * 18%) Tax impact: Income is to be disclosed as “Interest” under the head “Income from Other sources” (IFOS) and taxable at SLAB Rates (5/11)

Note: USDT fluctuates on daily basis. Hence conversion value on date of redemption can be used for determining Interest in INR Sonu, won’t the 30% tax as per Sec 115BBF apply? - No, 115BBF applies only when there is a transfer. On receipt of crypto there is no transfer (6/11)

In our example, Let’s assume: Mr.Amit redeemed on 31.03.2023 and earned Interest of 180 USDT (USDT/INR is ₹80 as on 31.3.2023) 👉Amit’s IFOS Income: Interest = 180 USDT * ₹80 = ₹14,400/- Tax will be as per Slab rates applicable to Amit. (7/11)

S-4: Amit now sells 1180 USDT for INR (USDT/INR is ₹82) Tax impact: Capital gains under Section 115BBH at 30% and TDS at 1% will be applicable. Since on sale of crypto there is a transfer as per Sec 2(47) hence Section 115BBH and 194S applies. (8/11)

Calculation of Capital Gain (CG): CG on Sale of 1000 USDT (Principal) = 1000 USDT * (₹82-₹78*) CG = ₹4000 Tax @ 30% = ₹1200 TDS @ 1% of Sale value (SV) = ₹820 *₹78 from S-1 (9/11)

CG on Sale of 180 USDT (Interest) = 180 USDT * (₹82-₹80*) CG = ₹360 Tax @ 30% = ₹108 TDS at 1% of SV = ₹148 *₹80 from S-3 TDS will be setoff with Tax liability when filing ITR. (10/11)

So with this we have completed the tax analysis at each stage of the Investment cycle :) I hope you were able to get clarity.. Disclaimer: I am a CA Finalist and specialise in Direct tax. This is solely my view and not a substitute for legal advice. #BudgetBytes (11/11)

Ser’s pls help share with the community :) @PillowFund @VauldOfficial @flintdotmoney @darshanbathija @simplykashif @sumitkapoor16 @CryptooIndia @CryptooAdy @PushpendraTech @coincrunchin @ThatNaimish @NischalShetty @gauravdahake @eth_us @sathvikv