Cryptocurrency is a digital currency which is an alternative form of payment created using encryption algorithms. In the Union Budget of 2022, the government officially categorised digital assets, including crypto assets, as Virtual Digital Assets. The outcome of this decision was that income from the transfer of virtual digital assets such as crypto and NFTs (non-fungible tokens) will be taxed at a flat rate of 30 per cent.

The tax rate, however, is not limited to only 30 per cent and there are other charges included in it as well. For example- if you have earned a profit of Rs 1,000 on the sale of a cryptocurrency amount, then post the deduction of 30 per cent tax, you will not get Rs 700. You will be subjected to a cess charge of 4 per cent and a 1 per cent tax deducted at source (TDS) which makes the total tax rate, i.e.- 35 per cent.

Let us assume that you have sold shares worth Rs 1,00,000 on a crypto exchange. A cryptocurrency exchange helps investors to buy and sell in digital currencies such as Bitcoin, Ethereum, or Tether. You earned a profit of Rs 50,000 on the sale of these shares. Now, instead of Rs 50,000, only Rs 32,500 will be credited to your account. That means 1 per cent of TDS, a flat rate of 30 per cent tax, and a 4 per cent cess charge has been levied on the profit of Rs 50,000. Now your total taxation rate on profits becomes 35 per cent which means you have to pay a tax of Rs 17,500 on a profit of Rs 50,000.

Esya Centre, a New Delhi-based Technology Policy Think Tank has come up with a proposal regarding the 1 per cent tax deducted at source (TDS) crypto tax policy. The Technology Policy Think Tank proposed that the TDS tax on cryptocurrency needs to be lowered to 0.01 per cent. The findings have been published in a study titled Impact Assessment of Tax Deducted at Source on the Indian Virtual Digital Asset Market.