Overview: A closer look at the income tax policy on earnings through non-conventional means in India

A closer look at the income tax policy on earnings through non-conventional means in India

Income tax planning becomes pivotal to achieve one’s financial goals, and while some find it monotonous, it is necessary to understand the nuances involved, along with the numerous prevailing tax-saving instruments. According to the data provided by the income tax department, for the Year 2019-20, more than 5.65 cr. taxpayers filed income tax returns (ITRs) before the August 31st deadline. However, if someone’s annual taxable income is in a higher tax slab, then these people can consider non-conventional methods to save tax. The new methods will benefit taxpayers to achieve their financial and tax-saving goals. These non-conventional means can be cryptocurrency, stock trading, content creators and many more.

Tax computation of Income earned from cryptocurrency

The two consecutive lockdowns in India, made people understand the importance of having a passive income source. However, tons of individuals’ value more high investment in cryptocurrencies. In India, around 10 million crypto stakeholders have been recounted in 2021. Also, legal tender for any cryptocurrency or bitcoin has not been approved by The Reserve Bank of India (RBI) in India. Hence, there aren't any clear rules or guidelines defining taxability for cryptocurrencies, which entails precise clarification from the revenue enhancement (I-T) department.

Cryptocurrency as income and expenditure:

In India, when cryptocurrency is considered as an income, its tax can be calculated according to the income tax act 1961, in which cryptocurrency will be considered as an asset. When cryptocurrency is considered as an expenditure, its tax can be calculated according to the Goods and Services Act, 2017.

Cryptocurrency as an investment asset or business income:

Capital gain tax is that profit that is gained by a movable and immovable asset. Cryptocurrency is a movable asset and all the income from here is taxable. If a person holds a cryptocurrency for a limited time, the tax rate changes accordingly.

Whilst gains done for a short period would be called short term capital gains. These gains are taxable as per the slab rates applicable to the taxpayer while long term capital gains are taxed as 20 percent with the gain of indexation.

If we talk about crypto mining than, capital gains tax will not be applicable on mining because we consider the mining as the supply of service and on supply of service we don’t have to pay any tax. But the reward and transaction fees from this mining are taxable and this would be considered as income from other sources.

It is a widely known indisputable fact that taxpayers having an income over 50 lakh yearly are required to disclose their assets and liabilities within the Schedule of Assets and Liabilities, together with the value of the acquisition. Since cryptocurrencies may also be considered as assets, taxpayers even have to incorporate those within the above schedule.

Cryptocurrency as a commodity:

There is no clear definition of commodity but in a landmark case of Tata Consultancy Services vs. State of Andhra Pradesh, 2004 court held that commodity is an asset that can be produced for commerce. Commodities are defined as marketable goods or wares, like raw or partially processed materials, farm goods, or ornaments. Some intangibles are not deliberated as commodities like human labour, services, or advertising. According to this definition, cryptocurrency is an intangible asset and we can even call it a commodity.

Tax on Content Creating income under the revenue enhancement Act

With the onset of social media, the demand for content creators and bloggers is ever on the increase. The income earned by a content creator is subject to tax provisions under the Income Tax Act.

Sources of revenue for a content creator:

Firstly the most common source of income for a content creator is through advertisements.  The content becomes a platform for promoting the products and services of the company.

One of the foremost popular ad networks is Google ads. It provides superb income to the content creators. Whenever a reader clicks on the ads, the content creator creates money.

The second source is affiliate sales. Here the content creator put links to products or services in their blog related to such products and services. If the reader clicks on that link and purchases the product or service, the content creator earns money.

The third one is paid review. Companies can unswervingly go and approach popular content creators and request them for paid reviews in their blog or content.

Tax calculation:

Tax calculation can be done according to the income tax act, the taxpayer must pay taxes on the income in profit and loss account after taking into consideration the total revenue and expenses and remit taxes on net income. The allowable expenses like rent expenses, employee salaries, domain hosting expenses etc. are calculated.

The content creator prerequisites to pay taxes on the balance amount as per the slab rates of the tax act. The content creator is additionally subjected to additional taxes like Good and Services Tax (GST), deduction at Source (TDS), and equalisation levy.

Taxation of income earned from Stock Trading

Nowadays, everyone invests some amount of their salary, income, business income accessible trading. Generally, people are unsure about how this income is taxed. The income from stock trading is enclosed under capital gains.

Tax on Short term capital gains:

Short term capital gains are taxable at 15 percent. A special rate of tax of 18% applies to short term capital gains no matter the tax slab. If the full taxable income excluding short term gains is below 2.5 lakh, then the person can adjust the shortfall contrary to the short term gains. The remaining short-term game may be taxed at 15 percent.

Tax on Long term capital gains:

Up to the limit of 1 lakh Rupee is not taxable for Long term capital gains on stock trading. As per amendments in budget 2018, the long term capital gain of more than 1 lakh will be taxable at 10 percent and with the benefit of indexation.

Securities Transaction Tax (STT):

Apart from the above-mentioned taxes, securities transaction tax is applicable on all equity shares which are sold and brought on a stock exchange policy. Any gain through to sale and purchase which occurs on a stock trading is subject to STT. But it can only be applied for shares on which STT is paid.

Conclusion:

In India regarding cryptocurrency, stock trading should require more disclosure and transparency. As cryptocurrency regulations in India remain ambiguous, a growing number of Indians are accessing digital tokens by buying and selling on foreign platforms which may have better features and customer service. In online transactions, there is more transparency but here in unconventional modes, it is missing. Despite mutable values, Cryptocurrencies, stock trading has a potential future but there should be definite laws on this.