Digital currencies and assets particularly NFTs (non-fungible tokens) have experienced widespread worldwide popularity during the previous several years. The introduction of taxation of cryptocurrencies exchanges has resulted in massive growth of their trading volume.
Digital assets along with cryptocurrency turned into market changers that brought new opportunities for investors and companies across all territories. Bitcoin emerged through the financial crisis of 2008 which became the initial cryptocurrency in history. Blockchain technology through Bitcoin brought the world its very first cryptocurrency which transformed financial mindsets. Multiple cryptocurrencies emerged after Bitcoin with an Indian market which is currently expanding rapidly.
The Budget 2022 provided specific guidelines for taxation of cryptocurrencies. The year 2022 marked the first time cryptocurrency holders had to deal with taxation. Now subsidiaries and other cryptocurrency-based financial assets require reporting through the tax return system according to the regulations introduced during 2022 and 2023. This article will teach readers about cryptocurrency basics and Indian tax regulations regarding cryptocurrencies.
What is Cryptocurrency?
Digital assets known as cryptocurrencies enable users to purchase goods through network transactions. The transactions operate under this name since they apply strong encryption to ensure complete security. A decentralized system controls cryptocurrency as the central authority does not regulate or control this type of currency.
The value of the global cryptocurrency market exceeds $1.7 trillion at present. At present the exchange platforms list more than 17,000 different cryptocurrencies and this number continues to expand. Indian society has persistently considered cryptocurrency controversial since its inception due to its decentralized structure that operates without bank or financial institution or central-agency intermediary involvement.
Is Crypto Taxed in India?
India requires taxation on cryptocurrency assets. The Indian government implemented cryptocurrency taxation regulations through new budgetary rules during the 2022 financial year.
Flat 30% Tax on Profits:
India implemented a universal 30% crypto tax regulation during the 2022-23 fiscal year that applies to every taxpayer. The tax system applies the same rate for all profits from cryptocurrency trades regardless of whether profits come from short-term or long-term activities. The updated ITR forms contain Schedule – Virtual Digital Assets (VDA) which serves as a requirement for crypto/NFT gain reporting.
TDS at 1%:
Any transaction amount above ₹10,000 (or exceeding ₹50,000) triggers a 1% TDS tax obligation during the financial year. The exchange system handles TDS calculations at 1% during all transactions which eliminates the need for manual documentation.
The tax system applies to everyone who deals with cryptocurrencies no matter their investment role. All crypto dealings are subject to taxes. Crypto gifts as well as mining profits and staking rewards and airdrops constitute taxable assets. There is no permissible tax deduction unless it involves purchase costs.
How do I invest in cryptocurrency?
To acquire cryptocurrencies you need both a “wallet” to hold them and account verification on a platform known as an exchange. A properly completed KYC process in your accounting services for small business makes you eligible to acquire cryptocurrency. Users complete identity verification on cryptocurrency exchange platforms before buying Bitcoin along with Ethereum using their real money deposits.
How is Cryptocurrency Taxed in India?
All Virtual Digital Assets including cryptocurrencies are tax subject to Indian laws. Here’s how they are taxed –
- According to section 115BBH the taxed amount of cryptocurrency trading gains stands at 30% (with 4% cess included).
- All crypto asset transfers conducted after July 1, 2022 must have their tax deducted at source at 1% under section 194S when the transfer value exceeds Rs.50,000 or Rs.10,000 in specified scenarios.
- Investors with either private or commercial status need to pay crypto tax for their transfers of assets during the annual year.
- Short-term and long-term gains from all income types face the same tax rate which stands at 30% plus 4% surcharge.
- Trading cryptocurrencies and their sale transactions creates tax liabilities that amount to 30% of the income total (with a 4% surcharge for business income and capital gains).
How to Calculate Tax on Crypto?
The Indian tax authority requires you to pay 30% flat tax on all your crypto earnings. Here’s how to calculate it –
Gains from crypto = Sale price – purchase price (cost of acquisition)
Crypto tax = 30% of Gains from crypto.
Which Crypto Transactions Are Liable to Tax in India?
All crypto asset transactions in India require tax reporting when the following events take place
- The method of using digital currencies to make purchases for products and services
- Exchanging cryptocurrencies for other cryptocurrencies.
- Transactions that involve cryptocurrency conversion through the use of Indian Rupees along with other standard currencies.
- Services delivered in exchange for cryptocurrency payments will bring tax liabilities.
- Receiving cryptocurrency as a gift
- Cryptocurrency mining
- Drawing a salary in crypto
- The process of staking crypto enables users to earn rewards from their stake along with other benefits.
- Receiving airdrops
Tax on Mining Cryptocurrency
Cryptocurrency mining income must be taxed at a 30% rate through applying the fair market value of the mined cryptocurrency at its time of mining. Mining expenses receive no specified tax deduction according to current provisions.
Tax on Airdrops
Under the Income Tax regulations airdrops receive a 30% tax status which classifies them as Income from Other Sources.
Tax on Crypto Staking/Forging
The act of cryptocurrency staking requires tax obligations on collected earnings. This income is taxed at 30%. A tax obligation of 30% Capital Gains applies to crypto assets upon their sale to owners.
Tax on Crypto Gifts
The taxation for crypto gifts follows ‘income from other sources’ rules at regular income tax rates provided the total gift value exceeds Rs 50,000. The Income Tax Act provides no tax liability on gifts accepted from close relatives.
Restrictions on Loss Set-Off for VDA Transactions
Based on the Income Tax Act any loss encountered through VDAs cannot be deducted from earnings generated by other VDAs. The tax rules do not allow using cryptocurrency profits or losses to offset one another when trading different types of digital currencies.
Conclusion
Earn income from trading cryptocurrencies? Our tax experts will assist in determining your tax obligations from trading crypto. It is crucial to report crypto gains when preparing your Income tax Return. Contact easyfileitr tax experts right now to submit your ITR through their expert support.
Is cryptocurrency legal in India?
Cryptocurrency is not illegal in India, but it is not considered legal tender. It is regulated under taxation laws.
Do I need to pay tax if I hold cryptocurrency without selling it?
No, tax is only applicable when you sell, trade, or earn from cryptocurrencies. Holding crypto is not taxable.
Is there any tax on crypto gifts?
Yes, if the value of a gifted cryptocurrency exceeds ₹50,000, it is taxed as ‘Income from Other Sources’ unless received from close relatives.
Is there a TDS deduction on crypto transactions?
Yes, a 1% TDS is applicable on transactions above ₹10,000 (₹50,000 for certain individuals) as per section 194S.
How do I report crypto earnings in my Income Tax Return (ITR)?
Crypto income should be reported under the ‘Virtual Digital Assets (VDA)’ section in the ITR form.
