Understanding your tax obligations in crypto futures trading is essential, regardless of whether you are a new or experienced trader. Crypto futures are derivatives contracts that allow traders to speculate on the future price of a cryptocurrency. But does it attract crypto taxation in India? Let’s find out!
The government has implemented several tax regulations on cryptocurrencies, including crypto futures trading. These tax rates on futures and options in India can be confusing and complex.
Therefore, this article will provide an overview of the tax implications of crypto futures trading in India and discuss the different types of taxes that apply to crypto futures traders and the specific tax rules that govern crypto futures transactions. It will also highlight some tax planning strategies that crypto futures traders can use to minimise their tax liability. Let’s begin!
How Are Cryptocurrencies Taxed In India?
Cryptocurrencies are categorised as virtual digital assets (VDAs) in India and are subject to taxation under the Income Tax Act 1961. As per Section 115BBH, the tax rate for gains from trading VDAs is 30% plus 4% cess, i.e., if you sell a cryptocurrency for a profit, you must pay 30% tax plus an additional 4% cess.
Moreover, a 1% Tax Deducted at Source (TDS) has also been introduced for crypto transfers exceeding INR 10,000 and, in some cases, INR 50,000 under Section 194S. Hence, if you transfer a cryptocurrency to another person, and the transfer value exceeds INR 10,000, the cryptocurrency exchange will deduct 1% tax from the transfer amount and deposit it with the government.
The crypto tax applies to all investors, including individuals, companies, and trusts. This means that all types of investors who profit from trading cryptocurrencies will be liable to pay taxes on their profits.
How To Calculate Your Taxes From Crypto Futures Trading?
Computing taxes on profits from crypto futures trading in India is complicated. When you exchange your Indian Rupees (INR) into USDT stablecoin to participate in crypto futures trading, you won’t face any immediate tax obligations.
Upon realising a profit from crypto futures trading, this profit is categorised as speculative business income. The taxable amount is determined based on the conversion rate at profit realisation. This taxable income is then subject to the individual’s applicable tax slab rate.
Tax On Crypto Futures Calculation
Kapil purchased 1000 USDT at INR 85 each to begin trading in crypto futures. A year later, he earned a profit of 2000 USDT from this initial investment. When realising the profit, the USDT price was INR 86. Here’s how the taxation works for Kapil:
Initial Purchase of 1000 USDT @ INR 85
No tax is applicable as this is considered an investment without any immediate taxable event.
Profit of 2000 USDT
This profit is treated as business income calculated at INR 86 per USDT, totalling INR 172,000. The tax on this amount will be based on Kapil’s applicable income tax slab rate. This amount also sets the cost basis for tax purposes.
Income tax on futures trading profit (INR 172,000) at the applicable slab rate.
Effortless Crypto Tax Reporting With Koinx
You must track your profits and losses to calculate your taxes from crypto futures trading. You can do this using a crypto tax calculator such as KoinX. It is an automated tax-calculating software that supports multiple exchanges and wallet integrations.
You must connect your account to KoinX, which will do your task. It calculates capital gains and losses based on the latest tax rules and regulations. You can export your tax report in various formats and file it with your preferred tax authority.
Moreover, it lets you see how your crypto transactions affect your tax liability in real time. You can also simulate different scenarios and optimise your tax strategy before trading.
Read More: Crypto tax on monthly salary
Conclusion
Every investor and trader must grasp the tax on futures and options in India. According to the Income Tax Act, any income generated from futures and options trading is considered business income, regardless of how often or much you trade. The Indian government has also imposed a 30% tax on gains from crypto transactions and a 1% TDS on transactions above INR 50,000 after realized PnL.
