The government’s classification of cryptocurrencies, NFTs, and tokens as virtual digital assets (VDAs) establishes their inclusion in the taxation framework. Therefore, any gains or income generated from these assets are subject to taxation. It is essential to navigate the crypto tax landscape to ensure compliance and accurately report your financial activities related to cryptocurrencies.
How are Cryptocurrencies Taxed in India?
All cryptocurrency purchases, sales, and transactions are subject to a 30% capital gains tax on profits, with no provisions for reduced rates or deductions under Section 115BBH. Along with the capital gains tax, a 1% Tax Deducted at Source (TDS) fee is applied to crypto asset transfers. Any transaction exceeding Rs 50,000 in a given financial year, the TDS that is deducted will be reflected in 26 AS and the same can be claimed back when filing income tax return.
How to Calculate Tax on Cryptocurrencies?
Let’s look at it with a simple example,
Suppose B purchased 10 Ethereum coins on March 1, 2023, at a total cost of Rs 8,00,000. After holding them for some time, B decides to sell 7 Ethereum coins on September 1, 2023, for Rs 15,00,000.
To calculate the tax liability for B,
The cost of acquisition for B’s 10 Ethereum coins is Rs 8,00,000.
To determine the capital gains, we subtract the cost of acquisition from the selling price:
Selling Price: B sold 7 Ethereum coins for Rs 15,00,000.
Capital Gains: Selling Price – Cost of Acquisition 15,00,000 – 8,00,000 = Rs 7,00,000
The capital gains amount to Rs 7,00,000, which will be subject to the flat tax rate of 30%.
Tax Liability: Capital Gains * Tax Rate 7,00,000 * 0.30 = Rs 2,10,000
In this example, B would have a tax liability of Rs 2,10,000 on the capital gains from the cryptocurrency transaction.
What are the Tax Implications on Different Types of Transactions?
Cryptocurrency taxation in India encompasses various scenarios, each with its own tax implications. Understanding these implications is essential for accurate compliance.
1. Purchasing Cryptocurrencies: Buying cryptocurrencies with Indian rupees is generally tax-free. However, if the purchase is conducted through peer-to-peer or foreign websites, a 1% Tax Deducted at Source (TDS) deduction is applicable.
2. Capital Gains Tax: Holding onto cryptocurrencies is tax-free, but it is important to keep track of transactions to calculate capital gains or losses accurately. Profits from buying stablecoins or exchanging one cryptocurrency for another are subject to a 30% tax rate.
3. Selling Cryptocurrencies: Selling cryptocurrencies, whether for fiat money or other cryptocurrencies, attracts a 30% tax rate with a 1% TDS deduction.
4. Wallet Transfers: Transferring cryptocurrencies within your own wallets is tax-free since ownership remains unchanged. Such transfers are not considered virtual asset transfers.
5. Airdrops and Forks: Profits from selling airdropped or forked tokens are subject to a 30% capital gains tax. Airdrops are treated as gifts, and income tax is payable based on the fair market value of the received tokens. Exemptions may apply if the total value of airdrops and gifts remains below ₹50,000.
6. Gifting and Donating Cryptocurrencies: Gifts from immediate family members or costing less than ₹50,000 are tax-free. Gifts received on special occasions or through inheritance are also exempt from tax. However, gifts valued above ₹50,000 within a fiscal year are subject to income tax. Donating cryptocurrencies to recognized charities does not qualify for tax deductions and may incur a 30% tax. When giving cryptocurrencies as gifts in India, the recipient is responsible for any applicable taxes.
7. Mining and Staking Rewards: The Indian Income Tax Department has not provided specific rules for taxing mining and staking rewards. It is likely that income tax will be levied on rewards based on the individual’s applicable tax rate. Selling, exchanging, or utilizing the rewards may also attract a 30% tax on profits. It is advisable to consult with an experienced accountant for guidance in such cases.
Tips for Crypto Investors to Navigate Taxation in India
Keep accurate records: It is crucial to keep detailed records of all your cryptocurrency transactions, including relevant information such as dates, values, and transaction types. These records will assist you in accurately calculating gains or losses and determining your tax liability.
Familiarize with Taxation Rules: Take the time to familiarize yourself with the taxation rules and regulations that apply to cryptocurrency transactions in India. Stay updated with any changes or updates in the tax laws to ensure compliance.
Track Capital Gains and Losses: Utilize crypto tax calculators or consult with professionals to accurately calculate your capital gains and losses from cryptocurrency transactions. This will help you determine the taxable amount and ensure accurate reporting.
Declare Airdrops: If you have received airdrops or undergone token forks, be sure to declare them in accordance with the tax regulations. Determine their fair market value in Indian rupees on the day of receipt and report them accordingly.
Take Professional Help: If you find yourself uncertain or confused about cryptocurrency taxation, it is advisable to seek guidance from a tax professional or a qualified accountant who specializes in cryptocurrency taxation. They can provide personalized advice, address your specific concerns, and help you navigate the complexities of filing taxes accurately.
(The author is CEO and Co-founder of Mudrex, a Global Crypto Investment Platform)
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)
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