The existing tax implications in India are very straightforward when it comes to crypto trading or purchasing/selling your NFTs (along with other virtual digital assets).
However, for certain events like IDOs, the tax rules are unclear.
So are you liable to pay taxes if you participate in IDOs and other related events? If so then under which category will these IDOs be taxed?
Well, we’re here to answer!
What is an IDO?
An initial DEX Offering (or IDO) is a fundraising method used in the cryptocurrency and blockchain industry, similar to an Initial Coin Offering (ICO).
IDOs take place on a decentralized exchange (DEX). In an IDO, a new blockchain project sells tokens directly on a DEX to investors, bypassing the traditional venture capital fundraising process.
Over the past few years, IDOs have proven to be very beneficial for the crypto industry and related success stories. Some of their benefits include
- Decentralization: IDOs are based on decentralized exchanges which promote transparency, security, and democratisation of fundraising.
- Accessibility: IDOs provide early investors with the opportunity to access new blockchain projects and participate in their success.
- Faster fundraising: IDOs are a faster way for blockchain projects to raise funds compared to traditional methods.
- Lower barriers to entry: IDOs allow investors to invest in new projects with smaller amounts of capital.
Are IDOs taxable in India?
In 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.
Real-life scenario of tax computation on IDOs
Let’s say Virat staked 10 BNB for 30 days and received 100 ABC tokens as a reward.
The value of each ABC token is ₹1000.
In this case, Virat will have an Income of ₹1,00,000/- and this income will be taxed under Income from other sources.
Some ambiguities about tax on crypto gains
There are several ambiguities about tax on IDOs, including:
Regulatory ambiguity: The tax treatment of IDOs is not clear in India, leading to uncertainty for investors and projects.
Lack of clarity on reporting requirements: The reporting requirements for IDO transactions are not well established, leading to confusion for investors and projects.
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.
