Nirmala Sitharaman, the honorable finance minister, has proposed sweeping changes to the virtual asset class in Budget 2022. The government has now formally referred to digital assets, including cryptocurrency assets, as “virtual digital assets.” These include all digital currencies, including Bitcoin, Ethereum, and other cryptocurrencies, as well as non-fungible tokens (NFTs).
Even though there are still many discussions that the Indian Government needs to have with the Indian populace regarding the rules it will set for “Virtual Digital Assets,” in accordance with cryptocurrency taxation in India: these are the considerations that any cryptocurrency investor should keep in mind.
- At the end of each fiscal year, income from the transfer of virtual digital assets like cryptocurrency and NFTs will be subject to a 30% tax.
- When declaring income from the transfer of digital assets, there will be no deductions permitted besides the cost of acquisition.
- Digital asset losses cannot be offset by any other income.
- Gifts of digital assets come with tax obligations for the recipient. There is no way to balance gains from one virtual digital currency against losses from another. This list of recommendations should also include the 1% TDS point, which was announced in Budget 2022.
In accordance with the Income-Tax Act of 1961 Section 206AB:
- If any user hasn’t submitted an income tax return in the previous two years and the total amount of tax (TDS) in those two years was at least $50,000, then 5% of cryptocurrency-related transactions must have TDS withheld from them.
- TDS provisions will apply to orders placed before July 1, 2022, but trades executed on or after that date will not be subject to TDS.
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Tax on cryptocurrency in India?
In India, cryptocurrencies are indeed taxed.
Before 2022, neither the classification of cryptocurrency assets nor the ensuing taxation of Bitcoin and other cryptocurrencies had an official stance from the Indian government. But recently, the Indian government recognized cryptocurrencies for the first time by classifying them as Virtual Digital Assets (VDAs) and introducing a taxation framework for VDAs, otherwise known as crypto.
How much tax on cryptocurrency in India?
You must pay a 30% tax on any cryptocurrency trading, selling, or spending profits as well as a 1% TDS tax on any sales of cryptocurrency assets that exceed RS 50,000 in a single fiscal year.
You might also be required to pay income tax at your individual tax rate when it is received if it is determined that you are receiving other cryptocurrency income, such as through mining or staking.
How tax on cryptocurrency in India work?
Virtual Digital Assets (VDAs) are defined in Section 2(47A) of the Income Tax Act, which was added by the ITD. The definition goes into great detail, but in essence, it includes all types of crypto assets, such as cryptocurrencies, NFTs, tokens, and more.
When will you pay tax on cryptocurrency in India?
Every time you conduct one of the following transactions, you might have to pay the 30% tax:
- purchasing cryptocurrency with INR or another fiat currency.
- trading stablecoins and other cryptocurrencies.
- using cryptocurrency to buy goods and services.
The 30% tax won’t always be applicable, though, as the ITD may occasionally mistakenly consider you to be earning money. You will pay tax in these situations at your Individual Tax Rate when the money is received. This comprises:
- Giving cryptocurrency as a gift, if you’re the recipient (see the gift section for more information).
- coin mining (see the mining section for more information).
- paying with cryptocurrency.
- stake benefits.
- Airdrops.
Additionally, you might be responsible for paying the 30% tax on any profits if you later sell, trade, or use these coins or tokens.
DeFi activities may have numerous potential tax repercussions in addition to everything mentioned above.
DeFi income
On DeFi transactions, the ITD has not yet issued any specific guidance. Instead, for guidance, we must look to the current provisions of the Income Tax Act. Upon receipt, the following DeFi transactions might be subject to your individual tax rate:
- gaining new governance, reward, or mining tokens for liquidity.
- such as Binance Referral, referral bonuses.
- Campaigns to teach you how to earn money include Coinbase Learning Center and CoinMarketCap Learning Center.
- On sites like Odysee, you can watch to earn.
- platforms like Permission.io or Brave are used to browse to earn.
1% TDS applied to crypto assets
A 1% TDS will be charged when a crypto asset is transferred. TDS is a type of tax that is gathered at the point of the transaction, or at the source. The main objective of the 1% TDS is to record transaction information and keep track of Indian investors’ purchases of crypto assets.
Despite the ITD’s ambiguous language, a transfer refers to a change in ownership, such as a sale, trade, or expenditure, not a transfer from one wallet to another.
There are a few crucial considerations regarding crypto TDS:
- Transactions beginning on July 1, 2022, are subject to a 1% TDS.
- TDS will be withheld from trades made on Indian exchanges and deposited with the government.
- When transacting via P2P platforms, the buyer is required to withhold TDS.
- TDS will be applied to both the buyer and the seller in crypto-to-crypto trades at a rate of 1%.
To further complicate matters, if consideration is paid by a “specified person” and the total value of their cryptocurrency trading activities does not exceed RS50,000 in a single financial year, no TDS is required to be withheld.
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What is a specific individual?
A HUF (Hindu Undivided Family) or an individual is referred to as a specific person. For Taxpayers Other Than Specified Persons, the TDS limit of RS50,000 is reduced to RS10,000 in the following circumstances:
- You either had no business income during the previous fiscal year or sales/gross receipts/business income up to Rs. 1 crore.
- You either had no professional income during the prior fiscal year or sales, gross receipts, or professional income up to RS 50 lakhs.
You won’t need to do anything if you trade on Indian exchanges because the exchange will typically take care of your TDS requirements. However, when it comes to paying and filing TDS as a specific person in the context of P2P transactions:
- In the case of a P2P transaction, you must submit TDS in Form 26QE within 30 days of the end of the month in which TDS was deducted.
- Except for a specific individual, all taxpayers must obtain a TAN, submit their returns using form 26Q, and pay their TDS by the seventh day of the following month.
Additionally, you can lower your overall tax liability by claiming TDS credit when you file your tax return.
Crypto losses
Losses from cryptocurrency investments are bad news for investors. Offsetting cryptocurrency losses with cryptocurrency gains—or any other gains or income, for that matter—is prohibited by Section 115BBH.
Additionally, Indian cryptocurrency investors are only allowed to deduct the acquisition cost or purchase price.
Tax-free crypto India
When will Bitcoin become tax-free in India? Which other cryptocurrencies are there? You won’t always have to pay tax on your cryptocurrency in India. In India, there is no tax on cryptocurrency when you’re:
| 1 | HODLing crypto |
| 2 | moving cryptocurrency within your own wallets |
| 3 | receiving a cryptocurrency gift from close family members up to RS50,000 or more |
India’s lost or stolen cryptocurrency
On lost and stolen cryptocurrency, the ITD has not provided any definitive guidance. There is no tax owed on any cryptocurrency lost as a result of a hack, scam, or theft, however, in accordance with a number of decisions made by Indian courts regarding the loss or theft of other types of assets.
It’s extremely unlikely that investors could claim and offset a loss from a lost or stolen crypto asset, though, given the ITD’s strict stance on offsetting crypto losses against gains.
How are cryptocurrency gifts taxed?
Whether it be coins, tokens, or an NFT, you must pay income tax based on the fair market value of your gift at the relevant slab rate if you receive cryptocurrency as a gift.
When receiving a gift, there are a few circumstances where you won’t be required to pay tax:
- The immediate taxation of gifts from close relatives (parents, spouses, siblings, lineal ascendant or descendant of the taxpayer and spouse) is not applicable.
- Receipt-based taxes are not due on gifts that fall under the RS50,000 threshold in a single fiscal year.
- Gifts and inheritances related to a marriage are not taxed when received.
FAQs On Crypto Tax In India
Q. How will the 30% cryptocurrency tax apply to salaries paid in cryptocurrency?
Ans. No, cryptocurrency received as payment is not subject to the 30% tax module. It will be taxed as “income from salary” because it is a salary.
Q. Is it possible to offset a loss on one cryptocurrency asset with a gain on another?
Ans. Losses on set-off are not permitted. For instance, if you invested in ETH or Ethereum and made a profit, but lost money on your BTC investments, the BTC losses won’t be considered. The 39% tax enacted at the end of the fiscal year will apply to your Ethereum gains.
Q. Is mining cryptocurrency subject to taxes?
Ans. The crypto tax bill states that mining cryptocurrency is not taxable. However, you will need to report it as business income if you receive any cryptocurrency tokens as a result of mining.
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