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India’s new crypto tax compared

India’s crypto community, which had been waiting years for clarity on how the government plans to tax these assets, got their wish this week. Now they wish they hadn’t.

In her budget speech on Feb. 1, Finance Minister Nirmala Sitharaman announced that India will tax all “virtual digital assets” at 30% – with no deductions or exemptions – from April 1.

But the real killer blow, especially for traders, is the 1% TDS (tax deductible at source) that will apply to every single transaction involving crypto.

Until now, standard income tax rules have been applied, under which gains on crypto transactions fall either under ‘business income’ or ‘capital gains’, depending on the nature of the transactions and the length of time across which they took place. But from April 1, India will treat income from crypto as it does lottery winnings, which are taxed at 31.2%.

How do India’s punitive new tax rules for crypto compare with those of other countries? Let’s find out.

United States

In the US, cryptocurrency falls under the same tax regime as stocks – capital gains tax. A capital gain is any money made on an investment. Say you invested $100 in a stock and cashed out once it grew to $110, the capital gain would be $10.

There is no capital gain until an asset is sold, which is a loophole the super-rich use to pay off loans without having to pay income tax.

The US Federal tax rate on cryptocurrency capital gains ranges from 0% to 37%.

Taxpayers are required to determine the fair market value of virtual currency in US dollars as of the date of payment or receipt.

Any gains or losses made from a crypto asset held less than 12 months (short term capital gains) are taxed at the upper marginal tax bracket in which the person’s taxable income falls. Any losses can be used to offset income tax by a maximum of $3,000, and any further losses can be carried forward.

If the crypto was held in excess of 12 months (long term capital gain), the applicable tax rate is much lower – 0%, 15% or 20% – depending on individual or combined marital income.

United Kingdom

The UK, like the US, treats cryptocurrencies the same as stocks for individual investors. If you buy and ‘dispose’ of cryptocurrency as a personal investment, you must pay capital gains tax on the profits. The tax-free allowance for capital gains tax is £12,300.

‘Disposal’ is a broad term that includes selling tokens for money, exchanging one type of token for another, using tokens to pay for goods or services, and giving away tokens to another person (unless it’s a gift to a spouse or civil partner).

The capital gains tax rates for disposing cryptocurrencies are 20% for higher rate (40%) and additional rate (45%) taxpayers, and 10% for basic rate (20%) taxpayers, with some caveats.

Also, capital losses from cryptocurrency can be considered for the tax liability, meaning if you sell your crypto for a loss, the loss can be deducted to reduce the overall capital gain.

In cases where the individual is running a business in crypto assets, income tax takes precedence over capital gains tax.

Germany

Germany is considered a crypto tax haven as it does not recognise crypto as monetary currency, commodities, or stocks. Rather, crypto is considered private money.

For crypto that you have owned for more than a year, the sale is tax-free regardless of the profit.You don’t even need to declare them in your tax return.

If you sell crypto assets within 12 months of buying them, profits up to 600 euros are tax-free. Profits over 600 euros from selling bitcoins are subject to tax. But even if your profit is only 1 euro more than the non-taxable value, you’ll have to pay taxes on the entire profit.

It’s a different matter for businesses, though. A startup incorporated in Germany must pay corporate income taxes on crypto gains, just as it would with any other asset.

Bermuda

There’s another type of country that doesn’t tax cryptocurrency gains – good old tax havens, where all assets, not just digital ones, attract little or no tax.

The island nation of Bermuda is one such territory. It doesn’t impose income, capital gains, withholding, or other taxes on digital assets, or on transactions involving them.

Not only does Bermuda not tax digital assets, it even accepts tax payments in crypto. In October 2019, it became the first country to accept payments for taxes, fees, and other government services in USD Coin, a so-called stablecoin whose value is pegged to the US dollar.

Written by Zaheer Merchant in Mumbai.

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