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Cryptocurrency Taxation in India - Guide to Crypto Taxes in India 2023
Over the last few years, digital currencies and assets such as NFTs (non-fungible tokens) have gained popularity around the world. With the launch of cryptocurrency exchanges, trading in these assets has expanded dramatically.
Cryptocurrency or digital asset has altered the playing field for investors and businesses all around the world. The first cryptocurrency, Bitcoin, arose as the aftermath of the 2008 financial crisis. It was the first blockchain-based cryptocurrency, and it revolutionized the way people thought about money. Post that, a lot of cryptocurrencies have come into existence, and in India, the market is growing at a rapid pace.
The Budget 2022 came with clarity on the taxation of cryptocurrencies. Before the year 2022, there was no tax applicable to cryptocurrencies. However, the updates in 2022 and 2023 consist of provisions regarding their taxation and reporting in ITR. So in this guide, let’s explore the fundamentals of cryptocurrency and its taxation in India.
Budget 2023 Crypto Tax Update
Disclosure of Crypto Assets in Schedule VDA
Following are the latest updates in respect of disclosure of crypto assets in ITR -
- The new ITR forms for F.Y. 2023-23 consist of a separate section called Schedule - Virtual Digital Assets (VDA). This schedule has to be used for reporting your gains from all virtual digital assets like NFTs and cryptos.
- Indian investors who trade in cryptocurrencies and NFTs must declare their income from crypto/NFTs as capital gains if they hold them as investments. However, the NFTs and cryptos held for trading purposes are considered business income.
What is Cryptocurrency?
The term "cryptocurrency" refers to a type of digital asset or currency that can be used to buy goods and services. The term is called so because the transactions are highly encrypted, ensuring that they are safe. Unlike traditional currencies, which are regulated and controlled by a central body, it is decentralized.
The cryptocurrency market is worth a massive $1.7 trillion. Currently, there are over 17,000 cryptocurrencies listed on the exchanges, and this figure is constantly on the rise. However, in India, it has primarily remained controversial since its inception due to its decentralized nature, which means it operates without the use of any intermediaries such as banks, financial organizations, or central agencies.
Is Crypto Taxed in India?
Yes, cryptocurrency is liable to tax in India. In the 2022 budget, new rules related to the taxation of cryptocurrencies have been introduced. It was kept at a flat 30% on income from the transfer of digital assets such as cryptocurrencies. The tax shall be paid by the individual who has received any profit on cryptocurrency transactions, irrespective of whether the gain is short-term or long-term.
How do I invest in cryptocurrency?
You'll need a "wallet" that can store your cryptocurrency to buy cryptocurrencies. In addition, you need to ensure that KYC is successfully done in the account to be eligible for purchasing cryptocurrency. In general, you open an account on a cryptocurrency exchange and then verify it and use real money to purchase cryptocurrencies like Bitcoin or Ethereum.
How is Cryptocurrency Taxed in India?
Cryptocurrencies are classified as Virtual digital assets and are subject to tax in India. Here’s how they are taxed -
- The gains from trading cryptocurrencies are subject to tax at 30% (plus 4% cess) as per section 115BBH.
- Any transfer of crypto assets on or after 1 July 2022 for an amount of Rs.50000 or Rs.10,000 in some cases are subject to a Tax deducted at source (TDS) at 1% under section 194S.
- The transfer of crypto assets during a year by investors, either private or commercial, is subject to crypto tax.
- The tax rate on short-term and long-term gains is the same, and it applies to all types of incomes.
The earnings from trading, selling, or swapping cryptocurrencies are taxed at a flat 30% (plus a 4% surcharge) for both capital gain and business income.
Other than this, a TDS at 1% is also applicable on the sale of crypto assets of transactions exceeding Rs.50,000 (or Rs.10,000 in exceptional cases).
Cryptocurrency tax calculation is now very easy with Tax2win’s cryptocurrency tax calculator.
How to Calculate Tax on Crypto?
You have to pay a tax of flat 30% on your crypto profits. 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?
The following crypto transactions are subject to tax in India -
- Spending cryptocurrencies to purchase goods and services
- Exchanging cryptocurrencies for other cryptocurrencies.
- Trading cryptocurrencies using Fiat currency like INR.
- Receiving cryptocurrency as payment for service.
- Receiving cryptocurrency as a gift
- Cryptocurrency mining
- Drawing a salary in crypto
- Staking crypto and earning the benefits of a stake
- Receiving airdrops
Can I offset losses accrued on Cryptocurrencies transactions?
Long-term capital losses can be offset against long-term capital profits under existing tax laws. It exempts taxpayers from paying long-term capital gains taxes. However, in the case of crypto revenue, this will not be possible. Losses from the sale of digital assets cannot be offset by other income. It will be treated as a separate class of asset.
TDS on Crypto Transactions?
TDS on cryptocurrencies was introduced to tax the crypto traders and investors as soon as they carry out the transaction by deducting the TDS at 1% at the source. The buyer is responsible for deducting TDS @1% from the amount before remitting it to the seller. While Indian exchanges automatically deduct TDS, people trading on foreign exchanges must manually deduct TDS and file their ITR.
In the case of P2P transactions, the buyer will deduct TDS and file form 26QE or 26Q, whichever is applicable.
TDS at 1% is applicable to both buyer and seller in the case of crypto-to-crypto transactions.
Frequently Asked Questions
Q- Are NFT (Non-fungible tokens) and cryptocurrency the same?
NFTs, or non-fungible tokens, are cryptographic assets on the blockchain that include unique identification codes and metadata that identify them from one another.
Q- Are cryptocurrencies a good investment?
Cryptocurrencies may appreciate in value, but many investors regard them as speculative investments rather than long-term investments. It should be noted that a currency needs stability.
Q- Is Cryptocurrency legal in India?
Currently, there is no regulation or any kind of ban on cryptocurrencies in India. After the 2022 budget, it can be said that virtual assets like cryptos will not be banned in India but treated as another asset class. However, it is not yet clear, and the recognition of digital assets under income tax is not akin to granting legal status.
Q- Will I be taxed if I give someone a Bitcoin?
No, according to the Finance Minister, only the individual who receives cryptocurrency would be taxed. Section 194S of the Income Tax Act was added to bring such transactions into the reporting system. A rate of withholding of one percent has been recommended. Such provisions took effect on July 1, 2022.
Q- Are Exemptions Available for Cryptocurrencies Transaction Profit?
No deductions are allowed except for the cost of acquiring digital assets. This means that a taxpayer cannot claim deductions and exemptions on the profit earned from the purchase and sale of cryptocurrencies.