The Indian crypto landscape has experienced a whirlwind of change, and taxation is no exception. While trading crypto is now subject to a flat 30% tax, questions remain: what about the crypto mining tax in India? Is the income you earn from crypto mining taxable? And if so, how much do you owe?
This blog delves into the murky waters of crypto mining taxes in India. We’ll explore the current regulations, unpack the tax rate and deductions (or lack thereof!), and answer your burning questions. Whether you’re a seasoned miner or just dipping your toes into crypto validation, this guide will equip you with the knowledge you need to navigate the Indian tax terrain.
Read More: Crypto Tax Guide India
How Do You Calculate Your Daily Mining Income?
How much crypto could you potentially mine each day? While it’s not an exact science, understanding the key factors can give you a solid estimate. Here’s a breakdown of what goes into calculating your daily mining income:
Hashrate Power:
This measures your mining rig’s processing speed, like the engine in a car. A higher hash rate means more coins solved, potentially leading to higher earnings.
Network Difficulty:
Imagine everyone mining is competing in a race. Difficulty reflects how hard it is to win (solve a block) and is constantly adjusting based on the total mining power on the network. Higher difficulty means less frequent wins, potentially impacting your income.
Block Reward:
This is the prize for solving a block, like the trophy in the race. It varies depending on the cryptocurrency and can change over time.
Electricity Costs:
Remember to fuel your mining machine! Electricity costs can significantly impact your profitability—factor in your rig’s power consumption and local electricity rates.
Pool Fees (Optional):
Many miners join “pools” to combine their hashrate for better chances of winning. These pools charge small fees, which you’ll need to consider.
However, you need to remember that crypto mining is a dynamic game. Fluctuating prices, network difficulty changes, and hardware efficiency can impact earnings.
How Is Crypto Mining Taxed In India?
Mining cryptocurrencies can be rewarding, but understanding your tax obligations is crucial. In India, the rules are specific, and you’ll be taxed in two ways:
Income Tax On Crypto Mining
Mining cryptocurrencies can be rewarding, but understanding your tax obligations is crucial. In India, the rules are specific, and you’ll be taxed in two ways:
Income Tax On Crypto Mining
A miner is responsible for classifying and disclosing his income as either Income from Business or Income from other sources based on the activity they engage in. If you engage in crypto mining, you must pay income tax based on the fair market value of the mined cryptocurrency converted into Indian Rupees (INR). This means that the value of the crypto earned through mining is considered taxable income, and you are taxed according to regular slab rates.
If you are mining crypto on a large scale to earn profits, that case is categorised as a business. The rewards you earn from such mining are calculated as Business Income. Moreover, you can claim deductions such as the cost of mining rigs, electricity expenses, rents, etc, if incurred in INR through your bank.
However, crypto mining as a hobby is tinkering with tech and earning a little crypto on the side, like a fun experiment. The FMV of mining rewards are categorised as “Income From Other Sources” in your ITR. Additionally, you cannot claim any deductions when mining crypto as a hobby.
Capital Gains Tax On Mining Rewards
Additionally, you must be aware of capital gains tax implications when selling, swapping, or spending the crypto you have mined. Any gains from these transactions are subject to a flat tax rate of 30%. Mining cryptocurrency creates taxable income if the value increases from acquisition (mining) to sale or exchange. The profit, representing this appreciation, is taxed at a rate of 30%.
In addition, you need to pay the government a 4% health and education cess. When you sell your minted tokens on a crypto exchange such as CoinDCX, they will charge you a 1% TDS on the selling price, which you can claim as a refund if you do not have any tax liability when you file your return.
Read More: Tax on Crypto Futures Trading
Applicable Clauses
The Indian Finance Department added specific tax clauses in its existing tax regulations to regulate the use of cryptocurrency in the country. Here’s a list of applicable tax clauses applied to crypto mining income.
Rule 11UA
This provision stipulates that if the price paid for newly issued crypto coins surpasses their Fair Market Value (FMV), they will be subject to income tax categorised under ‘Income from other sources’. Rule 11UA outlines the method for determining the FMV of these cryptocurrencies.
Section 115BBH
Section 115BBH taxes any profit from selling crypto or virtual digital assets (VDAs) at a flat 30% + cess (currently 4%). No deductions except acquisition cost and losses can’t offset other income. This applies to all individuals & businesses.
Section 194S
Introduced in the 2022 Union Budget, Section 194S of the Income Tax Act, 1961, aims to bring transparency and tax compliance to virtual digital assets (VDAs), including cryptocurrencies and NFTs. This section mandates a 1% tax deducted at source (TDS) on transferring VDAs, applicable when the transaction value exceeds specific thresholds.
According to Section 194S, a TDS obligation arises when the payment for the transfer of a (VDA) surpasses Rs 50,000 for a specified person and Rs 10,000 for others within the financial year.
A specified person is defined as:
- An individual or Hindu undivided family (HUF) without income from business or profession.
- An individual or HUF with a business income of up to Rs 1 crore.
- An individual or HUF with professional receipts of up to Rs 50 lakh.
How To Calculate Crypto Mining Taxes?
As a crypto mining enthusiast, understanding how to calculate your mining taxes is crucial to avoid penalties and ensure compliance. So here are the steps to determine crypto mining taxes in India:
Calculate Your Mining Income:
Navigating the complexities of cryptocurrency taxation requires a clear understanding of how to calculate your taxable mining income. It begins with establishing your minted tokens’ Fair Market Value (FMV).
Imagine you’ve successfully minted an XYZ token during the financial year. At the moment of receipt, its FMV stands at INR 12,000. Don’t forget to factor this figure into your Income Tax Return (ITR)! It’s crucial for reporting under “Income From Other Sources.” Consequently, you must pay taxes based on your tax rate.
In essence, by accurately determining the FMV of your mined tokens, you ensure compliance with tax regulations while gaining a clearer picture of your financial obligations in cryptocurrency.
Calculating Your Capital Gains Tax
When you decide to sell a token that you’ve previously minted, your potential profit is subject to capital gains tax (CGT). This tax is levied on the difference between the token’s fair market value (FMV) when you received it and the FMV at the time of sale. This process involves calculating your cost basis, which is the initial value of the token when it enters your possession.
For instance, if you minted a token when its FMV was INR 1000 and later sold it when the FMV had risen to INR 2000, your taxable gain would be INR 100 (INR 200 – INR 100). You would be required to report and pay taxes on this gain.
You must pay a flat tax of 30% and a 4% cess (health and education) of your gain as CGT. Moreover, you are liable to pay 1% TDS on the transaction.
Example:
Ravi is a crypto enthusiast who mines crypto as a side hustle from his computer at his house. He earns 0.1 BTC worth INR 2,00,000 in one financial year. Let’s assume that the net income from his primary income is INR 5,00,000.
Then, his net taxable income will be the sum of his primary income and FMV of the minted token.
In this case, the net taxable income is INR 7,00,000 (INR 5,00,000 + INR 2,00,000). Going by the current tax slab, he falls under the 10% tax slab category based on the new tax regime.
Now, if he decides to sell this 0.1 BTC after six months when the price is INR 4,00,000, he will enjoy a gain of INR 2,00,000 on the said transaction. This amount will be subjected to a flat 30% tax rate.
Net CGT will be 30% of INR 2,00,000, i.e., INR 60,000. He must also pay a cess of 4% of the taxable amount, i.e., INR 2400 (4% of INR 60,000). Hence, his net taxable amount is INR 62,400.
It is essential to mention that he needs to spend 1% of the sale value as TDS on the platform on which he sells this minted token. In this case, the TDS comes out as INR 4000, i.e., (1% of INR 4,00,000.)
KoinX In Action
Manual calculation of crypto mining taxes or, in general, any crypto taxes in India can be time-consuming. It is where you can use KoinX. It is an automated crypto tax calculating platform that generates accurate crypto tax reports based on the type of crypto transactions and users’ jurisdiction.
Here are some of the advantages that you can enjoy from using KoinX:
- Accurate previews of capital gains: It can help you to accurately preview your capital gains before you sell your crypto assets. This can allow you to make informed investment decisions and avoid unexpected tax liabilities.
- Auto-classification of transactions: The platform can automatically classify your crypto transactions. This can save you time and effort, especially if you have many transactions.
- Reliable tax reports: KoinX can generate reliable tax reports for you. This can help you comply with your tax obligations and avoid penalties.
- Portfolio insights: It can provide you with insights into your crypto portfolio. This can help you to make better investment decisions.
- Advanced assistance from crypto tax experts: It offers advanced assistance from crypto tax experts. This can be helpful if you have complex tax needs.
- Directory of verified Chartered Accountants: It has a directory of verified Chartered Accountants. This can be helpful if you need to find a qualified accountant to help you with your crypto taxes.
Conclusion
So, is crypto mining taxable in India? The answer is a clear yes. Although mining isn’t taxed, the earned crypto tokens are treated as business income or income from other sources.
The tax rate depends on the individual tax slab. Additionally, a 1% TDS gets deducted at the source of purchase. Navigating these regulations can be tricky, especially with fluctuating crypto values and ever-evolving tax policies.
Hence, do you want to ensure smooth sailing with your crypto taxes? KoinX offers a comprehensive crypto tax solution tailored to the Indian market. Our platform seamlessly tracks your mining income, calculates taxes based on current regulations, and generates ready-to-file ITR reports.
Simplify your crypto taxes and stay compliant with KoinX! Join us today to explore our services and start your tax calculation!
