Do you regularly trade or invest in cryptocurrencies or other virtual digital assets?
If your answer is yes, by now you already know that you’re liable to pay taxes on your trades in India.
But how much are you aware of recently introduced laws on crypto tax in India? How much are you liable to pay on profits? What about airdrops, minting, mining, or NFTs? And what about crypto donations?
All these situations and scenarios require you to understand the entire crypto landscape of India in detail. This guide shall be answering all the questions revolving around the laws on cryptocurrency tax in India.
Introduction
Indian crypto traders have had their fair share of rebuttals and doubts about the crypto industry over the past decade.
Despite India being one of the leading crypto developing countries, we’re yet to have a proper regulatory framework to govern this $1 trillion market cap industry.
This entire industry has witnessed its share of fluctuations and significant losses and gains – making it fair enough to be surrounded by so much skepticism.
A blessing in disguise, however, came along with the 2022 financial budget when new laws and regulations on cryptocurrency tax in India were proposed and implemented.
Anybody investing in or trading cryptocurrencies or similar assets is supposed to pay taxes.
But how much?
And what about the different types of transactions? How are they taxed in India?
To understand this, we need to understand virtual digital assets and how they are treated in India fir
What are virtual digital assets (VDAs)?
Money exists in both forms – physical and digital.
Your physical transactions include buying and selling things with the cash you carry or the cheques you can raise.
Crypto assets like NFTs are termed virtual digital assets which is a perfect example of digital representations of real-world assets or unique digital creations.
VDAs exclusively exist in digital forms – yet their value is very much the same as any physical assets.
Think of it like owning a piece of virtual real estate in a virtual world. Similar to a physical estate, the location, size, and features of your virtual property can affect its value. However, with virtual real estate, there is the added benefit of being able to design and create anything you want on it, limited only by your imagination.
These VDAs have been soaring in popularity. Beeple, one of the first NFT creators, sold his art collection as an NFT for over $69 million.
Similarly, virtual digital assets like cryptocurrencies or NFTs can hold value and be traded like traditional physical assets, but with added benefits such as increased security, instant transfers, and global accessibility.
Understanding virtual digital assets means understanding the digital landscape in which they exist, the technologies that make them possible, and the markets that drive their value.
How is cryptocurrency taxed in India?
Until 2022, there was no taxation on cryptos and related virtual assets.
However, with the 2022 Financial Budget of India, things took a turn as the government introduced a bill that introduced crypto tax in India.
India considers crypto as a virtual digital asset that is very well taxable. And this means that you’re liable to pay a 30% tax on profits made by trading cryptos.
- Precisely, Section 115BBH of the 2022 Budget levies a 30% tax on the profits made by trading cryptocurrencies or other virtual digital assets from April 01, 2022.
- The 194S section also levies a 1% Tax at Source on the transfer of crypto assets from July 01, 2022, if the transactions exceed ₹50,000 (even ₹10,000 in some cases) in the same FY.
- This tax rate applies to private investors, commercial traders, and anybody that transfers digital assets in a particular financial year.
- This tax rate also applies irrespective of the nature of income for the investor and doesn’t recognize any difference between short-term or long-term gains.
Furthermore, from July 01, 2022, as per the newly inserted Section 194S of the IT Act, TDS at the 1% rate will be deducted by the buyer when making payment to the seller for the transfer of Crypto/NFT. In case the transaction is made on an Indian exchange, then the Indian exchange will deduct the TDS and pay the balance amount to the seller. In this case, no action needs to be taken by the buyer.
These tax compliances are equally applicable and affect businesses and individuals involved in crypto sales and trades. Whenever you transfer your crypto, you’re charged 1% on every transaction. The 1% TDS on any transfer of crypto was implemented throughout the country on July 1, 2022.
Crypto Tax In India-Key Notes
- The section 115BBH levies a 30% tax on your crypto transactions
- The Section 194S of the IT Act levies a 1% TDS on the transfer of VDAs
- The 30% tax rate is applicable from April 1, 2022
- The 1% TDS rate is applicable from July 1, 2022
The 30% tax rate on cryptocurrency in India
The 2022 Indian Financial Budget introduced us to a pretty hefty tax rate on the cryptocurrency forefront. This 30% tax rate applies to the following:
- Trading cryptocurrencies with INR
- Exchanging cryptocurrencies for other cryptocurrencies
- Spending cryptocurrencies for goods or services.
Even though the 30% tax rate applies to trading, selling, or spending cryptos, there are plenty of other events that are taxed differently. The Income Tax Department views some transactions as income instead – meaning you’d have to pay tax at Individual Tax Rate at receipt.
Such transactions include:
- Gifting cryptos
- Mining crypto
- Drawing a salary in crypto
- Staking crypto
- Airdrops
Let’s explore all these types of transactions and understand how they are taxed in India.
Chapter 1 - Understanding Crypto TDS
Tax Deductible at Source (or TDS) was introduced alongside the 30% crypto tax in India under the Financial Budget 2022.
The goal of TDS is to charge crypto investors and traders at the source for any kind of transactions they make. When TDS is deducted, a person (the deductor) that owes a specific amount to another person or party (deductee) needs to deduct the TDS amount at the source and remit it to the central government.
This TDS amount on crypto in India is deducted at 1%.
From July 01, 2022, TDS at the 1% rate will be deducted by the buyer when making payment to the seller for the transfer of Crypto/NFT. If the transaction is made on an exchange, the exchange might deduct the TDS and pay the remaining balance amount to the seller.
For Indian exchanges, the TDS is deducted automatically.
However, If a taxpayer is trading on foreign exchanges, they’d require to manually deduct TDS and file their TDS returns.
The TDS on cryptocurrency in India might be a dynamic approach as it might change over time. However, for now, we can begin to understand the implications of this 1% TDS and how it affects you and your crypto trades.
Chapter 2 - Tax on Crypto Gains
If you’ve ever invested in cryptocurrency or other VDAs as a trader, your portfolio can either attract losses or profits.
Your crypto gains refer to the profit that your crypto holdings gather over a period of time.
This includes:
- Your capital gains
- Exchanging crypto assets
- Using crypto to buy goods or services
Let’s say you buy Bitcoin for over ₹10,000 in Nov 2022 and sell it for ₹15,000 in Feb 2023, which resulted in a profit of ₹5000. This profit is treated as capital gains under Crypto/VDA assets (introduced in 2022) in India and taxed as Capital Gains under cryptocurrency tax laws in India.
Profits made on crypto investments are one of the most common methods of earning from cryptos. Due to the bullish markets of 2021-22, a lot of people resorted to investing in cryptos in order to make profits.
Chapter 3 - Tax on Airdrops
Airdrops are the initial tokens or coins that you usually receive before a crypto project starts.
Even though Airdrops are part of a marketing strategy for crypto projects, being one of the first receivers of these tokens shall make you liable to pay taxes.
After FY 2021-22, the recently introduced cryptocurrency tax in India also imposed a tax on Airdrops and related transactions.
However, these Airdrops are taxed differently than your usual crypto gains. These Airdrops are taxed as Income from Other Sources (IFOS).
IFOS is applicable on Airdrops only if they have value – as on the date of receipt and are traded on exchanges or DEXes.
Example 1 – Let’s say a person named Ravi receives 10,000 ABC tokens as Airdrop on April 01, 2022. There is no trading of ABC tokens either on exchanges or DEXs. This means, there’s no income from airdrops.
Example 2 – Now let’s assume a person named Riya receives 10,000 ABC tokens as Airdrop on April 01, 2022, too and there’s an involvement in the trading (exchanging, buying or selling) of ABC tokens on exchanges or Dexes.
The ABC token is quoting a price of ₹10 on April 01, 2022.
This means that Riya will have an income of ₹1,00,000 from airdrops at the time of receipt of airdrops. In the second example, if there’s a subsequent sale of the tokens, the amount of ₹1,00,000 is considered as a cost of computing gains.
In case Riya sells the tokens on June 01, 2022, when the price for the ABC token was ₹20, the taxable gains will be: 10,000 ABC tokens * (₹20 – ₹10) = ₹1,00,000 taxed at 30% this amount ( ₹1,00,000/- ) will be considered as a cost for computing gains on the subsequent sale of the tokens.
Crypto airdrops are considered gifts for tax purposes and could also be eligible for tax exemption.
Chapter 4 - Tax on NFT Trading
Non-fungible Tokens (or NFTs) soared in popularity in around 2017 with the launch of CryptoKitties. With clubs like BAYC or World of Women, NFTs quickly rose to become a widely renowned phenomenon that everybody wanted to capitalize on.
However, this surge in popularity recently called for taxation from the Indian government in the 2022 Financial Budget.
As a result, you’re liable to pay taxes on your NFT trading from here on out.
But under what tax regime do they fall?
- Buying an NFT with fiat currency isn’t taxable.
- But if you buy the same NFT with a cryptocurrency like BTC or ETH, it’s a taxable event.
From April 01, 2022, all NFTs will be taxed at a rate of 30% (plus surcharge and cess) as per the IT Act.
Not just that but there’s also an implication of a 1% TDS that will be deducted from every sale.
To calculate your taxes for NFTs in India, you will need to determine the capital gains from the sale of the NFT. Capital gains tax is applicable if the NFT is sold for a profit, before reducing expenses and royalties. The tax rate doesn’t depend on the holding period of the NFT, whether it is a short-term or long-term capital asset.
Chapter 5 - Tax on mining cryptocurrency
Crypto mining is a decade-old method of contributing to the public crypto blockchain and reaping rewards for the same.
Since earning crypto coins and generating viable income had become very popular in the past few years the Indian Government now levies taxes, as introduced in its Financial Budget 2022, on income related to crypto mining.
Mining cryptos could be done for a variety of purposes that includes mining for business or even doing it as a hobby but it does attract tax in India.
Mining income is classified as per the type of activity – this income can be disclosed either as Income from Business or Income from Other Sources based on the type of mining activity.
Chapter 6 - Tax on Crypto Staking
If you are one of the many crypto stakers, you already know the pain of adhering to the entire process before you actually start with crypto staking. From choosing a proper validator to choosing a particular crypto to stake, the struggle is real.
To add fuel to the flame, the announcement of taxes on crypto in the 2022 Financial Budget in India introduced taxes on crypto.
However, proper clarification was still needed to mitigate the confusion revolving around the taxation regimes among people.
So the question is – Are you liable to pay taxes on crypto staking?
The short answer is yes, you’re liable to pay taxes on staking crypto.
The percentage of return provided by a validator each year APR (Annual Percentage Rate) determines profits from staking.
Assume you wish to stake 100 “X” coins to a validator that offers a 10% APR. Every year, you will receive 10% interest on your asset. This means that after one year, your net asset will be 100+(100×10%)= 110. That implies you’ll receive 10÷365= 0.027% interest every day or 10÷12= 0.833% interest per month.
Staking Income is taxed as Other Income at applicable Income tax slab rates. When the crypto asset is sold, Capital Gains Tax will be levied. Most investors will pay Income Tax upon receipt and a Flat 30% tax on any subsequent gains.
Most times, moving your coins to a staking pool or a wallet doesn’t attract taxes. An asset transfer between wallets usually is tax-free. However, the gas fee involved is taxable separately.
Chapter 7 - Tax on Minting Crypto
Minting crypto tokens is an aged method of creating new blocks, authenticating data, and recording information on the blockchain.
Minting is one of those processes that’s recorded through a “Proof of stake” protocol.
Minting is a process of creating new tokens and there’s no income from it.
So, is crypto minting taxable?
Well, not really!
You see, minting is a method of generating new tokens on the blockchain – which means that apart from the gas fees involves, there’s no other cost incurred in minting tokens. This makes minting a non-taxable transaction according to the 2022 Financial Budget of India.
Hence, minting tokens do not incur taxes in India.
However, there’s also a possibility that as per the Income-tax Act, alternative treatment to minting tokens is also possible.
Chapter 8 - Tax on Crypto Gifts
Gifting cryptos and other virtual digital assets is one way of transferring your assets to somebody else.
Even though it’s practically the same as gifting somebody a portrait or some money, is it still taxable in India?
The Financial Budget of 2022 in India introduced taxes on a variety of crypto transactions. However, gifting cryptocurrencies was one of those types of transactions where there wasn’t enough clarity given.
Gifting cryptos or other virtual assets refers to the act of transferring cryptos from one person to another as a present. The Income Tax regulations in India consider crypto gifts as:
- Movable property gifts: Specified movable assets received as a gift, or received at a lower price (less than its market value).
Cryptos could be gifted either via gift cards, crypto paper wallets, or crypto tokens.
In India, gifting cryptos could incur taxes. Gifts received with a value of up to ₹50,000 are tax-exempt. Gifts received from relatives with a value exceeding INR 50,000 are tax-exempt too. Gifts from non-relatives with a value exceeding INR 50,000 are taxable.
The VDA gifts received on special occasions, through inheritance or a will, marriage, or in contemplation of death are exempt from tax as well.
Chapter 9 - Tax on Crypto Salary
Even though receiving a salary in your crypto portfolio is uncommon, especially in India, it is still a thing and it is considered as a form of earning through cryptos.
Since the introduction of laws on cryptocurrency tax in India, are crypto salaries also taxable under it?
Well, here’s the answer.
Receiving a monthly salary from your crypto-related activities is very well taxable in India. The respective salary isn’t just taxable at the crypto forefront but also puts you in the taxable salary slabs in India.
Since you are receiving the crypto salary, it gets deposited into your portfolio which you can then proceed to transfer into your bank. Now whether you transfer it or use it in P2P transactions, it’s still taxable under crypto tax in India.
In fact, the following actions are taxable as well:
- Purchasing more crypto using INR or any other fiat cash.
- Buying goods and services using cryptocurrency.
- Trading stablecoins or other cryptos.
Chapter 10 - Tax on Crypto Donations
Making a donation via crypto is still a form of a traditional way of donating, just with added security and convenience.
The provision of crypto donations opens doors to making cross-border and anonymous donations, which really adds the essence to the whole equation.
However, being a form of crypto transaction, are crypto donations taxed in India?
The short answer is yes. Crypto donations are taxed in India. In India, donating via crypto is considered the sale of digital assets, and any capital gains from this sale are subject to tax.
Chapter 11 - Tax on Crypto Referrals
Before you start profiting off your next crypto referral, you should know that crypto referrals are also taxable in India according to the Financial Budget 2022.
A crypto referral basically allows a user of a crypto platform or service to invite more users to the same platform. The returns in this case usually involve referral bonuses that could be used as monetary value.
However, since this is also a form of earning from crypto and other VDAs, these referrals are also taxed in India. The crypto referral bonuses are considered additional income for tax purposes and are subject to Income Tax in India.
If the bonus is paid in crypto, the fair market value of the crypto on the day it was received must be used to calculate the amount of additional income. When the crypto is later sold, traded, spent, or gifted, one becomes liable to pay Capital Gains Tax on any gains.
In India, referral bonuses that usually fall under the category of income from other sources (IFOS) are considered additional income and are subject to income tax based on the applicable slab rate for the individual.
Chapter 12 - Tax on Token Sales (ICOs and IDOs)
Please note – This explanation is from an investors’ point of view.
Initial Coin Offerings (ICOs) and Initial DEX Offerings (IDOs) are types of token sales that are liable to taxes in India.
ICOs and IDOs over the years have been one of the primary reasons for many successful crypto projects. The features like decentralisation, better accessibility, faster fundraising, and lower barriers to entry in ICOs, and IDOs allow investors to invest in new projects with smaller amounts of capital.
The offerings are a way for crypto projects to raise funds from the public by offering their tokens for sale which also makes them subject to taxation in India according to the Financial Budget 2022.
In ICOs and IDOs, the tokens are airdropped to investors who stake a particular token for a specified period. All these tokens are taxed as Income From Other Sources (IFOS) in India. These IFOS are taxed on receipt and capital gains on subsequent sales.
Tokens are not always airdropped to users. In most ICO/IDO, investors need to pay in USDT/USDC or any other crypto asset and obtain the Project’s token. So if an investor is paying in USDT to obtain the token, then Capital gains will accrue on the sale of USDT.
How to make your tax filing convenient with KoinX?
KoinX is a comprehensive taxation tool that easily integrates with your preferred exchange(s) and gives you a detailed report about your tax obligations.
Launched in 2022, KoinX is one of the most comprehensive crypto tax calculating tools built for consumers and crypto tax advisors alike.
With its easy-to-navigate UI, simple exchange integration, and variety of features, KoinX is on its way to becoming one of the fastest-growing crypto taxation platforms in India.
The feature of importing tax data gives you a slight advantage over other platforms on this list, just because you can easily forward this information to your tax advisor, who helps you file your taxes.
Being beginner-friendly with a ton of resources, KoinX works in a few simple steps:
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