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Is Crypto Taxed in India?
Yes, the virtual digital assets, or crypto assets, are taxed in India after the Union Budget 2022, where the Hon’ble Finance Minister, Mrs. Nirmala Sitharaman, announced revolutionary changes to the virtual asset class. For the first time, the government officially termed digital assets, including crypto assets, under “Virtual Digital Assets”. These comprise of all the cryptos such as Bitcoin, Ethereum, etc, and other digital assets such as Non-fungible tokens (NFTs). This article will serve as a guide to crypto taxes in India.
- When engaging in the sale, swap, or expenditure of crypto assets, it’s important to consider the crypto tax implications. In India, profits from such transactions are subject to taxation at a rate of 30%, along with any applicable surcharges and a 4% cess.
- These tax obligations are governed by section 115BBH of the Indian tax code. It’s worth noting that there are no provisions for lower tax rates on long-term capital gains for crypto assets. Apart from the cost of acquisition, no other deductions are allowed.
- To ensure compliance, a 1% Tax Deducted at Source (TDS) is applicable on the transfer of Virtual Digital Assets (VDAs). It’s important to be aware that the 30% tax rate came into effect on April 1, 2022, while the 1% TDS was implemented on July 1, 2022.
- When filing your Income Tax Return (ITR) for the financial year 2022-2023, you must report any gains from crypto assets under Schedule VDA. By staying informed about these tax regulations and fulfilling your reporting obligations, you can effectively manage your tax responsibilities in relation to crypto asset transactions.
- The G20 discussion has mentioned that banning the asset class would be counterproductive, and it makes more sense to work on regulating it step by step within a global framework.
- The Interim Budget of 2024 has not provided any new updates for crypto taxation in India. Existing rules to remain as is, as enumerated below.
Budget 2023 Crypto Tax Update
The Union Budget rules of 2022 have been one of India’s first laws to recognize crypto assets, hence putting down taxation on crypto in India. However, following that, crypto assets have been categorized as “virtual digital assets” and not “currencies” backed by the central bank.
According to the 115BBH section of the Finance Bill, a taxable event is defined as:
- Conversion of any digital assets to INR or any other fiat currency.
- Conversion of one virtual digital asset type to another may include crypto-to-crypto trading or trading in stablecoins.
- Paying for goods and services using a virtual digital asset.
As per the announcements on the taxation on crypto in India, the profits that will or have been incurred from the above transactions are subjected to a 30% tax, which is equivalent to India’s highest income tax bracket. Furthermore, if the transaction exceeds INR 10,000, the crypto tax will then have an additional 1% tax levied on them.
What are Virtual Digital Assets?
Virtual Digital Assets refer to any digital assets that are not physical or tangible. In layman’s terms, it basically means cryptos, DeFi (decentralized finance), and non-fungible tokens (NFTs). Prima facie excludes digital gold, central bank digital currency (CBDC), or any other traditional digital assets and is specifically aimed at taxing cryptos.
Crypto Taxation in India Explained
Though there are still many discussions that the Indian Government is yet to have with the Indian masses regarding the regulations on Crypto Taxation in India in India, or for the ‘Virtual Digital Assets’; according to the Budget 2022 session, these are the pointers any crypto investor should keep in mind:
- Income from the transfer of virtual digital assets such as crypto and NFTs will be taxed at 30% at the end of each financial year.
- No deduction, except the acquisition cost, will be allowed while reporting income from the transfer of digital assets.
- Loss from digital assets cannot be set off against any other income.
- The gifting of digital assets will attract tax in the hands of the receiver. Losses incurred from one virtual digital currency cannot be set off against income from another digital currency. 1% TDS point should also be mentioned in this list of pointers as it was announced in Budget 2022.
As per Section 206AB of the Income-Tax Act, 1961:
- If any user has not filed their Income Tax Return in the last two years and the amount of TDS is INR 50,000 or more in each of these two previous years, then the tax (TDS) to be deducted for Crypto-related transactions will be at 5%.
- TDS provisions will apply if an order is placed before July 1, 2022, but the trade is executed on or after July 1, 2022.
How Much Tax Will You Pay on Crypto in India?
In short, two types of crypto taxes are now set to be levied on crypto assets. There is a 30% tax on the annual profits from crypto trades and a 1% TDS on every crypto transaction. The TDS cut is eligible to be filed for returns during the ITR filings.
What is 1% TDS on crypto?
According to the revised Income Tax Regulations for Crypto Taxation in India, the 1% TDS applies to all crypto asset sell transactions. This will be effective on July 1, 2022. However, please note that the TDS will be deducted from the final sale amount, not just the profits. For TDS, it doesn’t matter if you earn a profit or book a loss on your trade. It will be deducted, no matter what.
Read more on: 1% TDS on Crypto in India
How is the 30% Crypto Taxation in India Calculated?
The flat income tax rate is applicable to retail investors, traders, or anyone transferring crypto assets in a given financial year with no distinctions between short-term and long-term gains. The 30% tax rate is levied on any profits made from the transfer of virtual assets.
This 30% crypto tax rate under the current crypto taxation in India will remain the same irrespective of the nature of income i.e., it does not matter if it is an investment income or business income and is irrespective of the holding period.
Restrictions on Loss Set-Off for VDA Transactions under the Income Tax Act
Additionally, The Income Tax Act explicitly prohibits offsetting losses incurred from the transfers of Virtual Digital Assets (VDAs) against income or gains derived from other VDAs. For example, if an individual sells one crypto asset incurring a loss, this loss cannot be offset against a gain made from transferring another VDA (depicted in example 2 below).
To understand further, let’s see some examples:
If an investment of INR 1,00,000 was made in crypto at the beginning of FY2022, and by the end of FY2022, the crypto was sold for INR 1,50,000, a flat 30% crypto tax is applicable on an income gain of INR 50,000. As an investor, you will be liable to pay INR 15,000 (plus surcharge and cess) as taxation on crypto income in that financial year.
It should be noted that any income arising on transactions relating to crypto shall be taxed only at the time of transfer of such crypto i.e., if a person continues to hold the asset, the holding is not taxable on such unrealized gains.
*It is to be noted that in this example, we are only adjusting the losses in the same financial year from the same source of income and not setting off prior period losses or losses from any other business.
Transactions undertaken during FY 2022-23
Transaction 1: Bitcoin bought for ₹5 Lakh and sold for ₹6 Lakhs
Transaction 2: Ethereum bought for ₹2 Lakhs and sold for ₹1.5 Lakhs
Net income from the above transactions shall remain as ₹1 lakh which is the profit earned from the Bitcoin transaction.
30% tax on Crypto in India income for FY 2022-23: 30% of ₹1 lakh = ₹30,000 (plus surcharge and cess).
|Crypto Tax payable in India on:
|One-liner briefs(with metrics)
|Crypto to INR
|Selling: A 30% tax is payable on selling any crypto asset with a profit margin.
Buying: There is no tax when buying crypto assets with INR
|Crypto to Crypto
|Selling: A 30% crypto tax is levied when trading crypto.
Exchanging: A similar 30% tax is also applied on such occasions.
|Receiving crypto assets as gifts that exceed INR 50K are eligible for a 30% crypto tax.
|As airdrops categorize under gifts, it is taxable under India’s 30% crypto tax if the amount exceeds INR 50K.
|Selling: You may be liable for a 30% tax on any profits if you plan on selling, swapping, or spending the received tokens later.
Buying: Earning new tokens is taxed upon receipt at your Individual Tax Rate.
|Since no buying or selling is taking place while holding onto your crypto assets, there is no tax on the same.
|No crypto tax is levied while transferring crypto assets from one wallet to another.
When Do You Have to Pay 30% Tax on Crypto in India?
When engaging in various transactions involving crypto assets, it’s crucial to understand the implications of crypto taxation in India implications to ensure compliance with applicable regulations. One notable requirement is the payment of a 30% tax on crypto in India, which is applicable in the following scenarios:
- Selling crypto assets for Indian Rupees (INR) or any other fiat currency: If you sell your crypto assets in exchange for traditional currency, such as INR, you will be subject to a tax rate of 30% on the profits derived from the transaction.
- Trading crypto tokens for other crypto tokens, including stablecoins: If you participate in the exchange of one type of crypto for another, or even if you swap your crypto assets for stablecoins, it’s essential to be aware that the resulting profits will be taxed at a rate of 30%.
- Spending crypto on goods and services: Using your crypto assets to make purchases of goods or services is also subject to taxation. In such cases, any gains generated from the transaction will be subject to the 30% tax rate.
By recognizing these tax obligations and fulfilling your responsibilities, you can ensure that your crypto transactions are conducted legally while maintaining a clear understanding of the associated implications of crypto taxes.
Note the following crypto tax reporting dates:
In India, the financial year (FY) spans from April 1 to March 31 of the subsequent year. To illustrate, the current financial year is designated as April 1, 2022, to March 31, 2023, identified as FY 2022-23. When you file your taxes this year, you will report on the financial activities and transactions that occurred during this particular financial year.
How Will the 30% Crypto Tax be Applicable on Crypto as a salary?
The Individual Income Tax Slab Rates for FY 2022-23 (AY 2023-24) are as mentioned below.
|Existing Tax Regime
|New Tax Regime
|Up to INR 250,000
|Up to INR 250,000
|INR 250,001 – INR 500,000
|5% above INR 250,000
|INR 250,001 – INR 500,000
|5% above INR 250,000
|INR 500,001 – INR 1,000,000
|INR 12,500 + 20% above INR 500,000
|INR 500,001 – INR 1,000,000
|INR 12,500 + 10% above INR 500,000
|Above INR 1,000,000
|INR 112,500 + 30% above INR 1,000,000
|INR 750,001 – INR 1,000,000
|INR 37,500 + 15% above INR 750,000
|INR 1,000,001 – INR 1,250,000
|INR 75,000 + 20% above INR 1.000,000
Note: The above rates are for individual taxpayers aged less than 60 years. The crypto tax rates mentioned do not include the applicable surcharge and 4% cess. Taxpayers may also be able to claim rebates under Section 87A of up to INR 12,500 if income is up to INR 500,000.
Can You Avoid 30% Crypto Tax in India?
In short, there is no legal way to avoid paying the tax on crypto in India. The consequences for evading crypto taxes in India are determined based on the extent of tax evasion and the seriousness of the offense. Here is a brief overview of the penalties:
- Under-reporting or misreporting income: Engaging in the under-reporting or misreporting of income can result in a fine ranging from 50% to 200% of the tax amount evaded. Additionally, individuals involved in such offenses may face the possibility of imprisonment for up to 7 years.
- Late filing of Income Tax return: Failing to file an Income Tax return within the designated time frame incurs various penalties. These include an interest charge of 1% per month on the outstanding tax amount and late fees ranging from RS 1,000 to RS 5,000. In addition, individuals may be subject to a potential prison sentence of up to 7 years.
- Non-compliance with Tax Deducted at Source (TDS) obligations: Neglecting to deduct TDS from payments or failing to deposit the deducted TDS with the government carries repercussions. Individuals may face interest charges and late fees for non-compliance in such cases.
- Failure to file a TDS return: Individuals who fail to submit a TDS return within the specified timeline may incur a late fee of RS 200 per day.
Understanding and fulfilling your tax obligations is crucial to avoid these penalties. You can maintain a legal and responsible approach to your crypto taxation matters by ensuring timely and accurate reporting and compliance with TDS requirements.
Read more: How to save 30% tax on crypto in India
How to File Crypto Taxes in India?
Filing crypto taxes in India has become easier with CoinDCX. To make it an #EffortlessCryptoTax with CoinDCX, we have joined hands with KoinX. Now, with the integration of the crypto tax calculator widget on your CoinDCX app, you will be able to experience a simplifying journey to be compliant with all your investments & trades.
How to Stay TDS Compliant?
In the context of recent developments in India’s crypto taxation landscape, the Union Budget 2023 and the Interim Budget 2024 did not introduce any changes specifically related to Virtual Digital Assets (VDAs) following the earlier announcement of the 1% Tax Deducted at Source (TDS) on crypto. However, an important update was made through an amendment to the Income Tax Act under section 271C in the Finance Bill 2023.
According to the new amendment, failure to pay TDS will result in penalties equal to the unpaid TDS, as determined by a joint commissioner. Additionally, individuals may face a potential jail term of up to six months. In cases where there is a delay in payment, an interest rate of 15% per annum for late payment may be imposed.
To make #TDSnottedious with CoinDCX, we have implemented a streamlined procedure to assist users in managing their TDS payments conveniently within the CoinDCX App. Periodically, CoinDCX will share TDS statements with its customers, ensuring they have a record of their TDS transactions and remain updated on any further developments.
To further facilitate compliance, CoinDCX takes care of paying the TDS on behalf of its users each time they conduct a transaction on the app. Consequently, users can easily access their TDS report, summary, and certificate within the app itself with just a simple click. This enables users to conveniently file their returns in the future, ensuring their tax obligations are met efficiently and effectively.
Read more: 1% TDS on crypto trade, CoinDCX App
Things Investors Should Note:
Taxes on Crypto Gifts & Donations
Any gifts made in the form of virtual assets will also be taxed, and the recipient of the gift is liable to pay income tax on crypto in India at a flat rate of 30% (plus surcharge and cess). This is applicable to people gifting virtual assets such as cryptos or NFTs to friends and family in India.
Example: A received ETH worth INR 5000 from B on July 5. Since gifting falls under the income tax bracket, the INR 5000 will fall under A’s yearly income. Thus, a 30% tax on crypto will be levied.
Taxes on Crypto Airdrops
Similar to how brands will taste out the feedback on new products by giving away samples to retail sellers, airdrops in the crypto space act in a similar manner. Whenever any new token or NFTs are launched, some of them are airdropped to investors. Since this is not a direct investment, it can be divided into two parts. Firstly, the airdropped assets will be eligible for taxes under “other incomes”. Following the airdrop event, if investors hodl the assets and gain any profit from them, that will fall under the revised 30% crypto tax.
Example: If you received 100 XYZ tokens on Feb 06, 2023. The value of 1 XYZ token is INR 10. The taxable income further is INR 1000.
Read more: Crypto Airdrops Taxes in India
Taxes on Mining Cryptos
Based on the provisions of the crypto tax bill, crypto mining itself is not subject to taxation. However, it’s crucial to note that if you receive any crypto tokens as a result of your mining activities, they will need to be reported as business income for tax purposes. In other words, while the act of mining itself may not incur taxes, the earnings derived from mining in the form of crypto tokens should be treated as taxable business income. It’s important to understand and adhere to these guidelines to ensure compliance with the tax regulations pertaining to crypto mining activities.
Example: If you sold 0.25 BTC you mined when it was worth INR 19,000, you would owe capital gains tax on the profit that you made from it.
Taxes on DeFi Transactions
Upon closer examination, it becomes evident that DeFi taxes encompass a range of different transactions within the decentralized finance ecosystem. These transactions include activities such as yield farming, crypto mining, crypto lending, and borrowing. When it comes to mining crypto, taxation can take two forms.
Firstly, if you have acquired crypto tokens through mining activities, the resulting gains will be subject to taxation under the category of business income. This means that the profits obtained from mining will be treated as taxable income.
The second type of taxation comes into play when you hold onto the mined crypto and subsequently generate profits from its appreciation. In this scenario, a 30% tax is applicable on the realized gains when you eventually sell the asset.
Therefore, it’s important to consider the tax implications of engaging in various DeFi activities, including mining and selling assets, in order to fulfill your tax obligations and ensure compliance with the applicable regulations.
Taxes on Non-Fungible Tokens
If you’re considering the tax implications of Non-Fungible Tokens (NFTs), it’s important to understand how they are treated under the new tax laws. According to these regulations, NFTs categorized as Virtual Digital Assets are subject to taxation. Therefore, if you have purchased an NFT and subsequently generated profits from its sale, those profits will be taxable. It’s essential to note that the tax liability may also include a surcharge and a 4% cess in addition to the base tax amount. By being aware of these tax obligations, NFT enthusiasts can ensure compliance and fulfill their responsibilities in line with the applicable tax laws.
G20 Updates on Crypto Regulations
In its journey to regulate Virtual Digital Assets, the Indian government had earlier said it would make crypto regulations a point to discuss during its G20 presidency. The Honorable Prime Minister of India, Narendra Modi, announced a follow-up on the same during its G20 meeting.
The country members together had worked on implementing a CryptoAsset Reporting Framework (“CARF”) and amendments to the CRS (Common Reporting Standard). The country leaders have said, “We ask the Global Forum on Transparency and Exchange of Information for Tax Purposes to identify an appropriate and coordinated timeline to commence exchanges by relevant jurisdictions.” Some significant recommendations that have been made during the discussion also include that crypto should not be labeled as legal tender. One other mention also highlighted the fact that a ban on these assets will be counterproductive and also difficult to enforce.
In his remarks, Narendra Modi also mentioned that the emergence of crypto assets represents a novel frontier in societal organization and in the realms of monetary and financial stability. In light of this, there is a call for the establishment of universal standards to govern and oversee its operations.
Understanding the guidelines and regulations surrounding crypto taxation in India is crucial. This Crypto Tax Guide emphasizes knowing tax rates, reporting requirements, and potential penalties for different crypto transactions. Compliance with TDS obligations and timely filing of IT is essential. Stay informed, seek expert advice, and use resources from platforms like CoinDCX for streamlined processes. Keeping up with changes in tax laws is vital. Adhering to these guidelines ensures transparency, legality, and peace of mind when participating in crypto transactions in India.
The gains incurred by trading crypto assets are taxed at a rate of 30% and 4% cess, according to Section 115BBH. While Section 194S states that a 1% TDS will be deducted on the transfer of crypto assets from July 01, 2022. While filling in your income taxes, you can scroll to 'Schedule VDA' in ITR-2 or ITR-3 in order to report your crypto income tax. Bypassing crypto taxes will result in penalties that do not limit themselves to fines but also a possibility of prison time for up to 7 years. TDS won't apply if the user transfers or withdraws VDA to other wallets. The 1% TDS is deducted by crypto exchanges like CoinDCX. A report of the same is also shared with its users at regular intervals.
What is the tax rule on crypto?
How do I report crypto to income tax?
What happens if I don't pay crypto tax?
Would TDS be applicable on transferring on other exchanges or wallets?
Who will deduct 1% TDS, investor or crypto exchange?
The gains incurred by trading crypto assets are taxed at a rate of 30% and 4% cess, according to Section 115BBH. While Section 194S states that a 1% TDS will be deducted on the transfer of crypto assets from July 01, 2022.
While filling in your income taxes, you can scroll to 'Schedule VDA' in ITR-2 or ITR-3 in order to report your crypto income tax.
Bypassing crypto taxes will result in penalties that do not limit themselves to fines but also a possibility of prison time for up to 7 years.
TDS won't apply if the user transfers or withdraws VDA to other wallets.
The 1% TDS is deducted by crypto exchanges like CoinDCX. A report of the same is also shared with its users at regular intervals.
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