Introduction
Have you ever bought that sweet dip in Bitcoin and rode it to the moon, only to land face-first in a pile of tax confusion? Or maybe you’re a pro trader navigating the ever-changing world of NFTs, unsure which transactions get the tax department knocking.
So buckle up and join us as we navigate India’s exciting world of taxable crypto events. From selling your precious Ethereum or Bitcoin to receiving a mysterious airdrop, we’ll explain what triggers a taxable event and how to handle it like a crypto boss.
How Are Cryptocurrency Taxed In India?
With the introducing of the Finance Bill of 2022, India established a framework for taxing virtual digital assets (VDAs), commonly known as cryptocurrencies. This section clearly explains the current tax regulations for cryptocurrency in India.
Tax On Capital Gains:
Income generated from trading, selling, or swapping cryptocurrencies is subject to a flat tax rate of 30% under Section 115BBH of the Income Tax Act.
Moreover, this tax applies to all capital gains, regardless of the holding period (short-term or long-term).
It is important to note that there is no provision for offsetting losses from cryptocurrency transactions against profits. Additionally, losses cannot be carried forward to future tax filings.
Tax Deducted At Source (TDS):
Introduced in July 2022, Section 194S mandates a 1% TDS on the transfer of crypto assets. This TDS applies to all transfers exceeding a specific threshold within a financial year. The threshold amount is INR 50,000 for most cases and INR 10,000 in particular situations.
Moreover, you must understand that TDS deducts from the total transaction value, not just the profit earned.
Income Tax On Cryptocurrency
Some cryptocurrency transactions may be subject to income tax by the Income Tax Department (ITD). Upon receiving the income in these cases, you must fulfil your tax obligations based on applicable slab rates. This encompasses various scenarios, including
- Receiving cryptocurrency as a gift,
- Accepting payment in cryptocurrency,
- Earning staking rewards,
- Engaging in cryptocurrency mining,
- Receiving airdrops
For more information, you can check out our detailed guide on how cryptocurrency is taxed in India.
Taxable Crypto Events In India
The Finance Bill of 2022 introduced taxes on almost every transaction related to the VDAs. Each transaction has its own taxation and tax rate. To help you understand the basics of how different crypto events attract taxes in India, here is a table defining the same:
Transaction | Tax |
Buying crypto | 1% TDS, usually deducted by the exchange (excluding international & P2P trades) |
Selling crypto for fiat | 30% tax + 4% cess on any gain |
Exchanging crypto for crypto | 30% tax + 4% cess on any gain |
Spending crypto | 30% tax + 4% cess on any gain |
Mining rewards | Income Tax is applied at the regular slab rate, 30% tax + 4% cess if sold at a profit. |
Staking rewards | Income Tax is applied at the regular slab rate, 30% tax + 4% cess if sold at a profit. |
Airdrops | Income Tax is applied at the regular slab rate, 30% tax + 4% cess if sold at a profit. |
Donating crypto | Only cash donations are tax-deductible; any perceived profits may be subject to a 30% tax + 4% cess |
Gifts of crypto | The recipient is generally taxed, with some exceptions for gifts from close family or under INR 50,000 |
Future Trading | 30% tax + 4% cess on any gain |
Margin and Spot Trading | 30% tax + 4% cess on any gain |
Earning Salaries in Crypto | Income Tax is applied at the regular slab rate, 30% tax + 4% cess if sold at a profit. |
Crypto Referrals | Income Tax is applied at the regular slab rate, 30% tax + 4% cess if sold at a profit. |
ICOs and IDOs | Income Tax is applied at the regular slab rate, 30% tax + 4% cess if sold at a profit. |
Selling Cryptocurrency For Fiat Currency
Selling cryptocurrency for fiat currency in India incurs a capital gains tax liability. Specifically, a capital gains tax of 30% applies to any profits realised from the sale of crypto assets, along with an additional 4% health and education cess.
Exchanging Cryptocurrency With Cryptocurrency
In India, exchanging one cryptocurrency for another also triggers capital gains tax liability. Such transactions are subject to a 30% capital gains tax and a 4% health and education cess on any gains generated from the exchange.
Spending Cryptocurrency For Goods & Services
If you decide to buy goods or services in cryptocurrency, that transaction will be categorised as a form of VDA disposal. In such cases, you must pay a capital gains tax of 30% on any profit you have made from spending cryptocurrency. In addition to this, you must also pay a 4% health and education cess on your capital gains tax amount.
Crypto Mining
The type of mining activity and profit motive drive the tax rate on cryptocurrency mining in India. Individuals must disclose income generated from mining activities as either Business Income or Income from Other Sources.
The fair market value (FMV) of mined cryptocurrency, converted to Indian Rupees (INR), determines tax liability. You need to add the FMV of all the tokens on the date of receipt as income from other sources or business income.
Earnings from large-scale operations aimed at profit are treated as Business Income, allowing deductions for expenses like mining equipment and electricity bills.
Conversely, mining undertaken as a hobby falls under Income from Other Sources without eligibility for deductions.
Capital gains tax applies when selling mined crypto. It is 30% flat and includes a 4% health and education cess.
Airdrops
Receiving an airdrop is akin to receiving a gift, necessitating Income Tax payment at the individual rate based on the fair market value of the token upon receipt.
To determine the tax, consider the fair market value of tokens received in INR on the receipt day. This income should be offered for tax in the “income from other source section” in the IT return. Otherwise, the cost basis becomes zero at the time of crypto sale.
Any profit earned from selling, swapping, or spending airdrop tokens incurs a 30% tax. The cost basis for airdrops is their fair market value in INR upon receipt.
For a detailed guide, you can check out our article on how airdrops are taxed in India.
Crypto Staking
Staking cryptocurrency in India incurs tax obligations on the staking rewards, which are treated as income based on their fair market value in INR upon receipt. Income tax is applicable even if the tokens aren’t sold.
Additionally, selling, swapping, or spending staking rewards attracts a 30% tax plus a 4% cess on any profits, subject to capital gains tax, as cryptocurrencies are deemed assets.
Moreover, a 1% Tax Deducted at Source (TDS) applies to the selling price of the cryptocurrency.
Future Trading
Initially, exchanging Indian Rupees (INR) for USDT stablecoin for crypto futures trading doesn’t incur immediate tax obligations.
However, taxes arise when USDT is converted back to INR. Upon conversion, profits are subject to a 30% tax and a 4% cess.
Notably, these taxes can’t offset losses from trading other cryptocurrencies.
Check out this guide to learn in-depth how taxes on crypto futures trading work.
Margin And Spot Trading
In India, gains from crypto spot and margin trading incur a Capital gains tax rate of 30% and a 4% health and education cess as per Section 115BBH of the Income Tax Act.
This taxation applies uniformly, regardless of the holding period, eliminating differentiation between short-term and long-term gains for tax purposes.
Crypto Donation
Tax deductions for charitable donations are only applicable if donations are made through banking channels or in cash, up to INR 2,000.
However, since crypto isn’t recognised as legal tender in India, donations in cryptocurrency aren’t tax-deductible.
Instead, such contributions may be considered asset disposal, with any gains subject to a 30% tax rate and a 4% health and education cess.
For more information, see our guide on “How are crypto donations taxed in India?”
Crypto Gifts
Gifting cryptocurrency in India is subject to taxation, with exceptions based on the value of the gift and the relationship between the giver and the recipient.
Receiving A Gift Less Than INR 50,000
In India, receiving a gift of cryptocurrency valued at less than INR 50,000 in a financial year is exempt from taxation.
Receiving A Gift From Family
Under India’s prevailing gift tax regulations, gifts from immediate family members, such as parents or siblings, are exempt from taxation.
Receiving A Gift On Specific Occasions
Certain occasions warrant tax-free receipt of gifts from individuals outside immediate family circles. These include gifts received at weddings, inheritances, or via a will.
Receiving A Gift Of More than INR 50,000
Suppose you receive a cryptocurrency gift exceeding INR 50,000 within a financial year. In that case, you become liable for Income Tax at your applicable slab rate on the gifted amount.
Earning Salaries In Crypto
Taxes on crypto salaries in India function in the same fashion as salaries received in fiat currencies.
When receiving salaries in cryptocurrency, the total value in Indian Rupees (INR) on the receipt day determines the taxable amount under the income tax salary slab.
Tax rates vary based on the individual’s position within the income tax salary bracket.
Later, if you decide to dispose of the cryptocurrency received as a salary for a profit, you will be liable to a 30% capital gains tax and a 4% cess.
Crypto Referrals
Crypto referral rewards are categorised as additional income under the Income Tax Act.
Taxation depends on the individual’s annual income and ranges from 0% to 30% based on the tax bracket.
Consequently, you must pay tax on the fair market value of the crypto received on the day of receipt, which is crucial for determining taxable income.
Selling, swapping, or spending received crypto rewards incurs a 30% Capital Gains Tax (CGT) in India. A 4% health and education cess also applies to the CGT amount.
Notably, only the acquisition cost is deductible for calculating capital gains.
ICOs And IDOs
When tokens from Initial Coin Offerings (ICOs) or Initial DEX Offerings (IDOs) are airdropped to investors, the fair market value of these tokens at the time of receipt is considered “Income From Other Sources” (IFOS). This amount is added to your annual income and is subject to income tax at rates ranging from 0% to 30%, depending on your regular tax slab.
Exchanging primary tokens like Ethereum or Bitcoin for stakes in ICOs is treated as a crypto disposal, potentially attracting capital gains tax. The government taxes profits from selling these primary tokens at a flat rate of 30%, along with a 4% health and education cess.
Moreover, the sale of tokens acquired through ICO or IDO airdrops may also trigger capital gains tax if sold at a profit later on. The tax rate for such gains remains at 30%, with an additional 4% health and education cess.
Applicable Tax Clauses
The Finance Budget of 2022 introduced different sections in the Income Act to define the tax liabilities relating to VDAs. Here’s a list of applicable tax clauses that can apply to a crypto transaction for tax purposes:
Rule 11UA
This provision mandates that if the price paid for newly issued cryptos exceeds their Fair Market Value (FMV), it incurs income tax categorised as ‘Income from other sources’. Rule 11UA specifies the methodology for assessing the FMV of these cryptos.
Section 2(47A)
This section defines “virtual digital asset” (VDA) for tax purposes. In simpler terms, it clarifies that cryptocurrency falls under the umbrella of VDA taxation in India.
Section 115BBH
Section 115BBH taxes any profit from selling crypto or virtual digital assets (VDAs) at a flat 30% + cess (currently 4%). You cannot claim any deductions apart from the token’s cost. This applies to all individuals & businesses.
Section 194S
Section 194S, introduced in the 2022 Union Budget, targets transparency and tax compliance in virtual digital assets (VDAs) like cryptocurrencies and NFTs. It enforces a 1% Tax Deducted at Source (TDS) on VDA transfers, triggered when transaction values surpass INR 50,000 and, in some cases, INR 10,000.
Non-Taxable Crypto Events In India
With so many different transactions becoming liable to taxation in India, you may wonder if there are any tax-free crypto transactions in India. Let’s clear out the cloud: certain crypto transactions in India don’t attract taxes. These are as follows:
HODLing Crypto
Simply holding onto cryptocurrency, commonly called HODLing, does not incur any tax liabilities in India. As long as you’re not actively trading or selling the crypto, you are not subject to taxation.
Transferring Crypto Between Own Wallets
Transferring cryptocurrency between your wallets is also tax-free in India. Whether you’re moving funds between different wallets for security or convenience, such transactions do not attract any taxation.
Receiving Gifts If Crypto
In India, receiving cryptocurrency gifts from close family members, friends, and relatives up to INR 50,000 is exempt from taxation. Additionally, gifts of cryptocurrency from immediate family members, regardless of the amount, are tax-free.
KoinX In Action
The Indian crypto tax landscape can be complex, especially with frequent trading and multiple exchanges involved. This is where a crypto tax platform like KoinX can be a valuable asset for you:
- Multiple Integrations: KoinX can connect with cryptocurrency exchanges and wallets, automatically importing your transaction history. This eliminates manual data entry, saving you significant time and effort.
- Auto-Classification of Transactions: The platform can automatically identify and categorise different taxable events, including trades, swaps, mining income, and received gifts. It then calculates the tax liability for each event based on the current Indian tax regulations.
- Tax Reporting Tools: KoinX can generate tax reports that are compliant with Indian tax authorities (Income Tax Department). These reports provide a clear breakdown of your crypto transactions, income, and calculated tax liability, making filing your tax return accurately easier.
Don’t let crypto taxes become a source of stress. Get started with KoinX today and experience a smoother, more streamlined tax filing season!
Keeping accurate records of your transactions is important to calculate your gains for tax purposes. Check yours now.
Conclusion
The Indian crypto landscape is evolving rapidly, and understanding the tax implications is crucial for every investor. This guide has equipped you with a comprehensive understanding of taxable crypto events, from selling and trading to mining and receiving gifts. Remember, holding cryptocurrency doesn’t attract tax, but transactions that generate profit do.
