The government’s tax policy on cryptocurrency is straightforward.
Whether you’re running a business or just a small-time investor that has just stepped foot into the industry, the tax man will come knocking for his share of any profits you make from crypto.
The tax rate in India right now is a flat 30% on any virtual assets you transfer during the year, with no distinctions or exceptions!
What is considered a crypto gain?
A crypto gain refers to the increase in value of your cryptocurrency, resulting in profits. This can occur when the price of a particular cryptocurrency increases or when an individual or entity trades one cryptocurrency for another at a higher value. Gains can be realized through buying and holding, or through trading cryptocurrencies on an exchange.
How to calculate tax on your crypto gains?
According to the Financial Budget 2022 in India, if you trade, sell, or spend crypto, you will be subject to a 30% tax on profits. Additionally, if you sell crypto assets for more than INR 50,000 or INR 10000 as applicable in a single financial year, you will be subject to a 1% TDS (Tax Deducted at Source) tax.
To calculate the tax on your crypto, you must follow the given steps:
- Determine the cost of acquisition: This is the price you paid to purchase the cryptocurrency.
- Determine the fair market value (FMV) on the date of sale: This is the price at which you sold the cryptocurrency.
- Calculate the capital gain: FMV on the date of sale – Cost of acquisition.
- Once the profit is determined, it will be subject to a tax rate of 30%.
Now that we have the basics clear, here’s an example:
Shreya invested INR 1,00,000 to buy crypto at the start of the financial year 2022. By the end of the financial year, she sold it for INR 1,50,000, resulting in an income gain of INR 50,000. As per the tax laws in India, a 30% tax rate is applied to this income gain. This means that Shreya will have to pay INR 15,000 (plus surcharge and cess) as a tax on her crypto income for that financial year.
The implications of the TDS deduction
The Indian government has set up a tax plan for crypto enthusiasts. Anytime you buy, sell, or spend your crypto, you’re charged 1% on every transaction.
This means that in India, selling digital assets such as Bitcoin, Ethereum, Shibu Inu, Solana, Dogecoin, and more will result in a 1% reduction in the value of the assets at the time of sale for an Indian tax resident.
TDS will be applied to the seller only (if Crypto INR Pair), applied on both (If crypto-crypto pairs) at 1%. However, if your crypto trading activities don’t exceed INR 50,000 or INR 10,000 applicable in a single financial year and you trade with somebody, you’re exempt from TDS.
Applicable Tax Clauses
- Only the cost of acquisition can be deducted as an expense when calculating income from cryptocurrency.
- Losses from cryptocurrency cannot be deducted from cryptocurrency income and cannot be offset against other types of income, such as business or salary income.
- Losses from cryptocurrency cannot be carried forward to future years to offset cryptocurrency income in future years.
- If digital assets are gifted, the recipient will be liable to pay taxes on them.
Taxable Crypto Events In India
In India, the following are considered taxable events for cryptocurrency:
If you buy and sell cryptocurrency for a profit, it is considered a capital gain and is subject to income tax. Anyone who transfers crypto assets within a given financial year will be subject to a 30% tax rate on any profits made from the transfer of virtual assets, regardless of whether it is considered a short-term or long-term gain. This 30% crypto tax rate will be applied consistently, regardless of the nature of the income, according to Section 115BBH, which was introduced in the 2022 budget.
Airdrops are taxed at the Normal Income tax rate on receipt. Any subsequent sale, swap, or spending will be taxed at 30%. The cost basis for airdrops is considered to be the fair market value in INR on the day they were received.
The Indian Income Tax Department (ITD) has not yet provided specific guidance on tax implications for staking. However, as income is earned in crypto, income tax will likely be applied at the individual’s tax rate upon receipt of mining and staking rewards.
- NFT Trading, Margin Trading, and Token Sales:
Any gains or profits earned from NFT trading, margin trading, and token Sales will be subject to a tax rate of 30% (plus additional surcharge and cess). Additionally, a 1% TDS (Tax Deducted at Source) will be taken out of every sale made.
Minting is the process of creating new tokens on the blockchain. This action typically only incurs gas fees, and as such, these transactions may not be considered a taxable event by the government.
If you receive cryptocurrency as a result of a fork, the value of the coins received is considered income and is subject to income tax.
- Referral rewards:
Referral rewards will be taxed as Income from other sources (IFOS) as they are rewards received by referring users to projects.
The income earned from mining can be classified as either income from business or income from other sources, depending on the nature of the activity. If the mining is done as a hobby, it would be considered as income from other sources. The mining rewards received will be considered “Income from Other Sources” (IFOS). On the receipt of mining rewards, they are taxed at the normal income tax rate. The subsequent sale is at 30%
When you’re swapping your stablecoins for some crypto, the government sees it as trading crypto for crypto, so any profits you make will be subject to a 30% tax.
If you use cryptocurrency to participate in gambling or betting activities, any winnings are considered income and are subject to income tax.
Non-Taxable Crypto Events In India
Despite the tax compliances in India, don’t dampen your spirits just yet. There also are a few instances where you can keep all your digital treasure to yourself, such as:
- Holding: If you’re holding on to your crypto, you are in the clear. No taxes are to be paid here.
- Transferring: If you’re just moving your crypto between your own wallets, you don’t have to worry about taxes either.
- Gifts: If you’re lucky enough to receive a gift of crypto worth up to INR 50,000 or from close family members, you won’t have to pay taxes on it.
Keeping accurate records of your transactions is important to calculate your gains for tax purposes. Check yours now.
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In conclusion, the Indian government’s tax policy on cryptocurrency can be complex, but it’s important to understand the taxable events and implications in order to stay compliant.
If you’re confused about how to handle taxes on your crypto transactions, let KoinX take the stress out of the process!
Simply connect and upload your exchange statements and KoinX will quickly calculate the amount of tax you owe and for what. Taxation has never been easier!