In India, does cryptocurrency have to be taxed? Do you want to know how the Indian Income Tax Department (ITD) feels about Bitcoin and other cryptocurrencies? In this comprehensive guide on cryptocurrency taxes for 2023 and beyond, we’ve covered all you need to know about paying Tax on Cryptocurrency in India.
Is Cryptocurrency Taxed in India?
In India, cryptocurrencies are indeed taxed. Prior to 2022, neither the categorization of crypto assets nor the ensuing taxation of Bitcoin and other cryptocurrencies had an official stance from the Indian government.
Taxes on Cryptocurrency 2024
You must pay a 30% tax on any cryptocurrency trading, selling, or spending earnings as well as a 1% TDS tax on any sales of cryptocurrency assets that exceed ₹50,000 in a single fiscal year. If it is determined that you are receiving other cryptocurrency income, such as through mining or staking, you may also be required to pay income tax at your individual tax rate when it is received.
How is Cryptocurrency Taxed in India?
The phrase “Virtual Digital Assets” is defined under Section 2(47A) of the Income Tax Act by the ITD (VDAs). The definition goes into great length, but in essence, it includes all types of crypto assets, such as cryptocurrencies, NFTs, tokens, and more.
The finance minister included Section 115BBH in the 2022 budget. On gains obtained from trading cryptocurrencies on or after 1 April 2022, this clause imposes a 30% tax (plus any relevant surcharge and 4% cess). The highest income tax band in India is equal to this rate (excluding surcharge and cess). Private investors, professional traders, and anybody else who transfers digital assets throughout a particular fiscal year are subject to the tax rate. Additionally, the 30% tax rate will be applicable regardless of the type of income; hence, there is no distinction between income from investments and revenue from businesses, nor is there one between short-term and long-term profits. Cryptocurrency is subject to other taxes than the 30% levy. In order to guarantee that all cryptocurrency transactions are recorded, another clause, 194S, imposes a 1% Tax at Source (TDS) on the transfer of cryptocurrency assets on or after 1 July 2022, if cryptocurrency transactions reach ₹50,000 in a financial year (or ₹10,000 in certain circumstances).
However, there are still concerns for both investors and accountants. Before the FY 2022–2023, the ITD has not made it clear how cryptocurrency revenue would be taxed. When submitting their return for FY 2021–22, taxpayers have the option of declaring income as capital gains if investments are held for investment purposes or as business income if they are held for trading purposes. The Income Tax Return for FY 2021–2022 is due on July 31, 2022, and a late return may be filed through December 31, 2022. (for non-audit cases).
Key Points of Crypto Tax in India
- Any cryptocurrency asset profits are taxed at a rate of 30% (plus any relevant surcharge and 4% cess).
- The tax code’s section 115BBH applies to profits.
- There is no option for a lower long-term capital gains tax rate.
- Except for purchase costs, no deductions are permitted.
- TDS of 1% is to be paid on the transfer of VDAs.
- As of April 1, 2022, a 30% tax rate will be in effect, and as of July 1, 2022, a 1% TDS rate will be in effect.
When will you Pay Tax on Cryptocurrencies in India?
Every time you do one of the following transactions, you could have to pay the 30% tax:
- Purchasing cryptocurrency using ₹or another fiat cash.
- Trading stablecoins and other cryptocurrencies.
- Using cryptocurrency to buy goods and services.
The 30% tax won’t always be applicable, though, as the ITD may occasionally mistakenly consider you to be earning money. You will pay tax in these situations upon receipt at your individual tax rate. Among them are:
- Giving cryptocurrency – if you’re the recipient (refer to the gift section for more details).
- Coin mining (refer to the mining section for more details).
- Paying using cryptocurrency.
- Stake benefits.
- Airdrops.
TDS on Crypto Assets
A 1% TDS will be charged when a crypto asset is transferred. TDS is a type of tax that is gathered at the time of the transaction, or at the source. The main goal of the 1% TDS is to record transaction information and maintain track of investments made in cryptocurrency by Indian investors.
Despite the ITD’s ambiguous terminology, a transfer refers to a change of ownership, such as a sale, exchange, or expenditure, not a transfer from one wallet to another.
There are a few crucial considerations about crypto TDS:
- Transactions beginning on 1 July 2022, are subject to a 1% TDS.
- TDS will be deducted and submitted to the government while trading on Indian markets.
- When transacting via P2P sites, the buyer is required to withhold TDS.
- TDS will be imposed on both the buyer and the seller in crypto-to-crypto exchanges at a rate of 1%.
To further complicate matters, if consideration is paid by a “specified person” and the entire value of their cryptocurrency trading operations does not reach ₹50,000 in a single financial year, no TDS is needed to be withheld.
A Few More Things to Know
For taxpayers other than the specified individual, the TDS maximum of ₹50,000 is reduced to ₹10,000 if:
- You either had no business revenue during the previous fiscal year or sales/gross receipts/business income up to ₹1 crore.
- You had sales, gross revenues, professional income, or none of the above in the preceding fiscal year, up to ₹50 lakhs.
You won’t need to do anything if you trade on Indian markets because the exchange would often take care of your TDS needs. However, when it comes to paying and submitting TDS as a specific individual in the context of P2P transactions:
- In the case of a P2P transaction, you must report TDS in Form 26QE within 30 days of the end of the month in which TDS was deducted.
- Except for a specific individual, all taxpayers must get a TAN, file their returns using form 26Q, and pay their TDS by the seventh day of the following month.
Additionally, you can lower your overall tax liability by claiming a TDS credit when you file your tax return.
Cryptocurrency Losses
Losses from cryptocurrency investments are terrible news for investors. Offsetting cryptocurrency losses with cryptocurrency profits—or any other gains or income, for that matter—is prohibited by Section 115BBH.
Cryptocurrency investors from India are also not permitted to deduct any costs other than the acquisition cost or purchase price.
Indian Crypto without Taxes
When will Bitcoin become tax-free in India? Which other cryptocurrencies are there? You won’t always have to pay tax on your cryptocurrency in India. In India, there is no tax on cryptocurrency while you’re:
- Holding cryptocurrency.
- Moving cryptocurrency within your wallets
- Receiving a cryptocurrency present from close family members up to ₹50,000 or more.
Tax on Lost or Stolen Cryptocurrency
On lost and stolen cryptocurrency, the ITD has not provided any definitive recommendations. However, according to a number of decisions made by Indian courts on the loss or theft of other types of assets, there is no tax due on any cryptocurrency lost as a result of a hack, con, or theft.
It’s quite doubtful that investors could claim and offset a loss from a lost or stolen crypto asset, though, given the ITD’s strict position on crediting crypto losses against profits.
How are Cryptocurrency Gifts Taxed?
If you receive a gift of cryptocurrency, whether it be coins, tokens, or an NFT, you will be required to pay income tax based on the fair market value of the present at the appropriate slab rate.
However, there are a few instances when you won’t have to pay tax while receiving a gift:
- Gifts received from immediate family members (parents, spouses, siblings, lineal ascendant or descendant of taxpayer and spouse) are not subject to immediate taxation.
- Gifts that total less than ₹50,000 in a single fiscal year are exempt from receipt-based taxes.
- Marriage-related gifts and inheritances are not subject to taxation at the time of receipt.
How to Calculate Cryptocurrency Tax?
How do you determine your earnings when you know you’ll pay a flat 30% tax on them? You must first determine your cost basis. Your cost basis is the amount you paid to purchase your cryptocurrency, or its fair market worth (in ₹) on the day you got it. The ITD does not enable you to increase your cost base by items like purchase or sale fees, in contrast to most other tax offices. When you are aware of your cost basis, deduct it from the sale price. Instead, deduct your cost basis from the cryptocurrency’s fair market value in Indian rupees on the day you sold it if you instead traded or spent it.
Cryptocurrency Cost-basis Approach in India
Of fact, the majority of investors actually calculate profits and losses from a number of different crypto assets rather than just one, which makes keeping track of your cost basis much more difficult. The assets you sold and when you sold them are determined by the cost basis technique, which can significantly affect your gains and losses. First in, first out (FIFO) and average cost basis accounting are generally accepted in India.
Are Taxes Due When Purchasing Cryptocurrency in India?
Currently, you don’t pay tax when purchasing cryptocurrency using ₹ or any fiat money. However, if you are acquiring crypto through a P2P platform or overseas exchanges, you will be obliged to subtract 1% TDS and remit the remaining amount to the seller’s account.
Purchasing Cryptocurrency with Indian Rupees
Unless you’re using a P2P site, buying cryptocurrency with fiat money like Indian rupees is tax-free.
Conclusion
This article contains all the important points that should be considered or related to the tax payment of cryptocurrency in India. Still, before paying the taxes on cryptocurrency in India. It is very important for you to consult with an expert who has all the needed expertise in the preferable field. At Vakilsearch, you can find experts who can guide you on all the questions you are having on how to pay taxes on Cryptocurrency in India.
