Clarity and status quo are the two things individual taxpayers got from the budget and should be happy about! Every year the budget is looked upon eagerly by citizens for lowering taxes. This year the budget did not announce any major tax benefits for individual taxpayers, which may have disappointed many.
The finance minister did, however, give clarity on taxation of virtual digital assets. These digital assets include cryptocurrencies, tokens, NFTs or any information or code or number generated through cryptographic means, which can be transferred, stored or traded electronically. Such digital assets will be taxed at a flat rate of 30% irrespective of the tax bracket of the individual.
There is a TDS of 1% on transfer of these assets and losses incurred cannot be set off against gains or carried forward. The new tax rules will be applicable from April 1, 2021 onwards, which means gains made in this financial year will be taxed. Virtual assets gifted will be fully taxable in the hands of the recipient.
With more than 10 crore people investing in cryptocurrencies, this was a much needed clarification. Do note that this does not mean that digital assets are regulated, only the tax aspect on these transactions has been cleared up. Investors should watch out for further announcements on the crypto bill and of course the Sovereign currency, i.e. the digital Rupee.
Another rationalisation measure announced was capping the surcharge on long-term capital gains on capital assets to 15%. This would mainly impact taxpayers in the income range above Rs 2 cr and those investing in unlisted stocks. The long-term capital gains tax remains the same and has not changed.
On tax filing, individuals can now file revised returns within two years from the end of an assessment year. I often find taxpayers do not file capital gains or income from foreign equities or file the home-related sections wrongly. They now have an option to make the necessary corrections for the last two years’ returns and file updated returns.
With the budget behind us, taxpayers should get more serious about reporting their incomes while filing taxes. With the annual information statement capturing all financial transactions, it becomes imperative for taxpayers to keep track of their transactions and file returns correctly.
Many investors are not aware of the tax compliance required for foreign stocks or the difference in taxation in the case of unlisted stocks. Before jumping into these investments, understand their taxation. Taxpayers should also focus on simplifying their taxes.
The status quo in taxation is good and taxpayers should pay more attention to generating tax-efficient returns from their investments, over tax deductions. The deductions have been at the same levels for a while and it is doubtful that these are going to be changed in the future.
Budgets will come and go! Investment portfolios in the long term are impacted more by where you invest and for how long. That’s where the individual taxpayer should concentrate on going forward.
(The writer is a financial educator, founder director of Finsafe India Pvt. Ltd and co-founder of Womantra)