An Expert take on how Crypto Donations are Taxed in India

An Expert take on how Crypto Donations are Taxed in India
Untangling the Indian government's cryptocurrency taxation can feel like navigating a maze of rules and regulations, leaving even experienced investors scratching their heads. That's why we're here to simplify the journey with our comprehensive guide on crypto donation taxation.

Cryptocurrency taxation is a familiar concept in today’s digital world, but there are still gray areas that leave us scratching our heads. One such confusion is the taxation of crypto donations. 

While India has clear tax laws for trading and gifting, the tax on crypto donations remains shrouded in mystery. 

However, to help you understand this scenario better, we have compiled a guide to help you navigate the principles of tax on crypto donations better.

What is considered a Crypto Donation?

Cryptocurrency donations are the digital equivalent of giving someone a gift, but with the added benefits of speed and security. When a donor makes a cryptocurrency donation, they transfer a certain amount of digital assets, such as Bitcoin, Ethereum, or other cryptocurrencies, to a recipient. This transfer is made with the intention of gifting or contributing to a cause, organization, non-profit, or charity.

The beauty of cryptocurrency donations lies in their simplicity. Unlike traditional donations that may require intermediaries and a long process, cryptocurrency donations can be made with just a few clicks online. This makes the act of giving even more accessible and convenient, giving more people the opportunity to support the causes they care about.

How are Crypto Donations Taxed?

In India, when one offers cryptocurrency as a donation, it is perceived as the sale of digital assets and any capital gains from this sale are subject to tax.

Capital gains from cryptocurrency are simply the profit earned from the sale or trade of virtual currencies. 

This is the result of subtracting the original cost of acquiring the cryptocurrency from the price it was sold for. If the price of the cryptocurrency appreciates over time and it is sold for a higher price than the initial cost, the difference is considered a capital gain and is subject to taxation by the government.

Understand how crypto salaries are taxed in India:

How to Calculate Crypto Tax on Donations?

Here are 4 simple steps to calculate your crypto tax on donations:

Find the Cost of Acquisition: The price you paid to purchase the cryptocurrency.

Determine the Fair Market Value: The price at which you sold the cryptocurrency on the date of sale.

Calculate Capital Gain: Fair Market Value on the date of the sale minus the Cost of Acquisition.

Tax Calculation: The profit you made from the sale of cryptocurrency is subject to a flat tax rate of 30%.

Real-Life Scenarios of Tax on Crypto Donations

An individual purchased 1 Bitcoin for ₹20,000 and later decided to donate it when the price increased to ₹40,000.

  • Crypto Tax Law: According to the crypto tax law in India, the individual would be liable to pay a 30% tax on the capital gains made before the transfer.
  • Capital Gains Calculation: With the capital gains amounting to ₹20,000, ₹6,000 of it would be considered as the tax payment.

Applicable tax clause

  • The only expense that can be deducted when calculating income from cryptocurrency is the cost of acquisition.
  • Losses incurred from cryptocurrency trading cannot be used to offset other sources of income such as business or salary.
  • Any losses from cryptocurrency transactions cannot be carried over to future years for offsetting future cryptocurrency income.

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Calculating Crypto Taxes with KoinX

Tax doesn’t always have to be difficult, however. 

We at KoinX are built to simplify your tax compliances for you. You can skip all the technicalities of crypto taxes yourself and let KoinX take care of it.