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Tax rules on mining income in India

tax on mining income
If your overheating systems and surplus charges on your hardware weren’t already a burden, the complications on the taxation welcome to tax compliances on crypto mining. But what if we tell you that calculating this tax is as simple as anything?

This season, if your shopping cart contains an Antminer, a powerful GPU, or an Nvidia GTX 1070 to finally build that sweet mining rig, halt your spree for a moment and have a quick look through this guide. For crypto miners in India, the taxation part in 2022 came with a reality check. Being a niche that’s already slowly moving towards non-profitability, crypto mining invites taxes the same way as capital gains on your crypto investments.

As a miner, it’s important for you to understand and comply with the new tax compliances in India. With the involvement of tax, does mining still seem profitable? 

We’re here to explain.

What is considered a Crypto Mining Income?

Each time miners add a new block of transactions to the blockchain, they get a certain amount of value. For example, mining one block of Bitcoin gives you 6.25 BTC.

The monetary worth of the sum varies with the value of the bitcoin. However, the profit produced from mining varies depending on a variety of criteria, such as the hardware type, the cost of energy, the price of bitcoin, and the number of miners on the network.

How to calculate your daily Mining Income?

When discussing profitability, considering daily profits is important to understand your tax compliance better.

Daily profit is the daily income minus daily expenses. 

The net profit may be computed by determining how many days it would take to recover the one-time cost of mining. You may use trustworthy online profitability calculators to get accurate values as well.

Applicable taxes on Mining

Mining income will be classified as per the type of activity.

Mining income may be disclosed either as Income from Business or Income from other sources based on the type of activity. 

If a user is Mining as a hobby, then it may be disclosed as Income from other sources.

Real-life scenario(s) of tax computation on Mining Income

Let’s say Sanjay receives 100 XYZ tokens as mining rewards on April 01, 2022. The value of this token on exchanges is ₹10 per ABC token. In this case, Sanjay will have Income from Mining of ₹1,000 (100 XYZ tokens x ₹10) and the tax will be payable under the head IFOS. 

This amount will be considered as a cost for computing gains on the subsequent sale of the tokens.

However, alternative tax treatment based on precedents is also possible.

Alternative tax treatment can be done with the help of precedents i.e., as per Income tax judgments passed by the courts of the country.

Some ambiguities about Tax on Mining Income

The Income Tax Department in India hasn’t really clarified the specifics around the tax on mining enough. However, with you earning mining income in crypto, you still will have to pay the income tax at your individual rate upon the receipt of mining rewards. 

KoinX is an effective taxation tool that could help you understand all your crypto-related compliances. It aims to provide you a comprehensive outlook of your crypto portfolio – including your penny transactions. Start calculating your crypto taxes with KoinX.