How to Save Taxes on Crypto Gains in India [2023]

Introduction 

Crypto space in a totality has been in existence for a little over a decade now, with its introduction being made when the white paper of Bitcoin was introduced by Satoshi Nakamoto back on 2009. Back then, the new peer to peer transaction option was not adopted as vastly as it is today. As the blockchain technology got evolved and catered to more use cases, the more projects came to being, and so was the attention of the regulators. Back in 2018, when the crypto startups has taken their first step, the proposed ban on the asset from the RBI was the first barrier that the crypto space stormed through after fighting for it to be overturned; once the Supreme Court ruled for the crypto community, the Indian crypto community started the journey to become the biggest market for crypto and Web3. Fast forward to 2022, in the Indian context, the Union Budget 2022 session was the window that the crypto ecosystem was staring at for some clarity on regulations. The session went on with the introductions to taxes on the new asset class; now termed as Virtual Digital Assets.

Though there are still many discussions that the Indian Government is yet to have with the Indian mass regarding the regulations it will set for ‘Virtual Digital Assets’; according to the Budget 2022 session; these are the pointers any crypto investor should keep in mind:

1. 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.
2. No deduction, except the cost of acquisition, will be allowed while reporting income from the transfer of digital assets.
3. Loss from digital assets cannot be set off against any other income.
4. 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.

Read more on: Crypto Tax in India

WHAT CAN BE EXPECTED FROM BUDGET 2023 FOR CRYPTO

(Disclaimer: We are not claiming any pointers. The below expectations are not a suggestion from us, but researched pointers from various sources.) 

• Guided Legislation of crypto
• Clarity on the regulations of crypto
• Lower Crypto tax

What Crypto Taxes are applied?

The forms of investing in assets has always been a way for people to gain a little extra, depending on the market. Since the mass adoption of the crypto asset, investing in then has become the hottest trend; not only in India but also in the global investment market. As the technology that the crypto industry is based on, blockchain, is decentralised. The most interesting part about that is that these digital currencies are out of control from any governments or other centralised financial institutions. In simple words, there are no third party involvements. However, as an asset class, being regulated gives a lot more clarity for the investors. Thus, with regulations, the government have made the crypto asset a taxable once. The profit generated from its trading or transfer thus falls under the two forms of taxes.

• 30% tax on the profits made from crypto transactions
• 1% TDS on Buy and Sell of Crypto assets.

1% TDS ON CRYPTO ASSETS

According to the revised Income Tax Regulations, the 1% TDS is applicable on all sell transactions of the crypto assets. This will be effective for 1 July, 2022. However, please note that the TDS will be deducted on the final sale amount and not just on 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.

Additional Read: 1% TDS on Crypto in India – Simply explained with Infographics

5 Tips to save Crypto Tax In India

Take advantage of your losses

Yes, that can be one of the method used to save tax on crypto or reduce crypto tax; and this method has a name; tax-loss harvesting! It is a practice to intentionally sell the crypto assets that are running at a loss in ones portfolio in order to claim tax savings. The 30% tax is based only on the gains of the crypto assets that are incurred.

HODL; Invest For The Long Term

Similar to volatile assets, holding crypto assets for the long term has its benefits. As stated by many experts, it is the easiest way to minimize tax burden. Hold onto the assets and wait for a while before deciding to dispose of the assets; til they are long-term property.

Read more: Dollar Cost Averaging in Crypto

Indirect Exposure To Crypto

Many crypto enthusiasts believe that one of the more effective way in which one can save more on crypto taxation is to look for a way to gain an indirect exposure to crypto assets. To set ways for that, there have been a few improvements recently. Various global investment platforms have recently launched platforms for portfolios that will be allowing Indian crypto investors to obtain exposure to a particular digital currency even if they have not bought any crypto or invested in it! Such indirect exposure can be a way to save on crypto tax.

Using Stablecoins For Gains

As for cryptos like Bitcoin or Ethereum, the values are determined by the demand and supply mechanism, where as stable coins are pegged to a different currency; which makes it little less volatile. Thus, if someone makes use of coins that us pegged to a different currency, not only do they save on taxes but also secure their investment in the long run.

Taking Advantage Of A Low Income Year

The taxation rate of the profits from the crypto sales is calculated based on the taxable income. Since the calculations are based in that way, one path that an individual can explore is the selling of crypto asset on the low-income year. Since a lower income will ensure a lesser income tax rate for that financial year. One added advantage of the waiting period to get to a low-income year is that once an individual passes a period of 12 months, the tax rate for the crypto assets will then be taken into consideration as per the long-term capital gain rates. Thus, a double benefit when it comes to tax savings!

Conclusion

The crypto investments scenario has come a long way since 2018. Now more and more institutions are looking into investing into the crypto assets. It is pretty evident that decentralized technologies are making adoption headway and research has shown India to be a huge market not only For DeFi but also for Web3. The tax sure does make a space for crypto as a noticeable asset from the decision makers, but what more is to come from the Union Budget 2023 or the G20 meet, India is yet to see.