The Indian government’s legal approach to cryptocurrency has always been unclear. For years, India was speculated to ban cryptocurrency, but eventually, the government adopted crypto into the regulatory framework, hanging between terms “not illegal” and “not encouraged”.
However, in 2022, the Union Budget recognized virtual asset classes, and with that came a crypto tax in India that slid it undFer a 30% tax slab. Crypto tax in India, defined under the finance bill of 2022, has not only sounded the death knell for the nascent crypto industry but also caused losses for the overall ecosystem.
The 30% crypto tax has resulted in trading volumes worth ₹32,000 crores shifting to foreign shores. On top of that, the 1% TDS had an adverse impact that drained about 81% of trading volume from Indian crypto exchanges.
After the imposition of a drastic crypto tax regime in India, the expectation of crypto investors and traders hooked on the Union Budget 2023-2024. The Finance Minister Nirmala Sitharaman, on February 1, 2023, presented the Union Budget 2023 in the Lok Sabha. The Union Budget 2023 brought more of a status quo against those expecting alterations in the crypto tax regime in India.
To understand the Indian government’s stance on cryptocurrencies at present, we’re breaking down everything you need to know about crypto tax in India, including how crypto is taxed, calculated, and reported.
How is Crypto Tax Calculated in India?
As per the Budget 2022 session, the crypto tax is calculated based on the income from transferring virtual digital assets such as cryptocurrencies and NFTs. Both crypto and NFTs will be taxed at 30% at the end of each financial year.
As per section 115BBH in the 2022 Budget, a 30% tax would be applied on gains obtained from trading cryptocurrency on or after April 1 2022, in addition to the relevant surcharge and 4% cess.
To ensure all crypto transactions are recorded, another clause, 194S, imposes a 1% Tax at Source (TDS) on transfers. It is applicable for crypto transfers that occurred on or after July 1 2022, if the transaction amount reaches ₹50,000 in a financial year or ₹10,000 in certain circumstances.
If any crypto user has not filed their income tax return in the last two years and the amount of TDS is ₹50,000 or more in each of these two previous years, then 5% TDS will be deducted for crypto-related transactions.
Key Considerations about Crypto TDS:
- The buyer is required to withhold TDS when transacting via P2P sites. If paid by a “specific person” and the entire value of their crypto trading operation doesn’t exceed ₹50,000 in a single financial year, no TDS must be withheld.
- TDS will be levied on both the seller and the buyer in crypto-to-crypto transfers at the rate of 1%.
- TDS will be deducted and submitted to the government while dealing with Indian markets.
Note that TDS would be deducted from the final sale amount, not just profits. For example, if you have Rs 50,000 in Ethereum and sell it for Rs 40,000, making a loss, you are still liable to pay TDS.
Crypto tax in India put many activities under the lens to be viewed as “income”, including gifting crypto, staking rewards, airdrops, mining coins, receiving payments, and other DeFi transactions. Taxes are calculated per the recipient’s income tax rate when anyone deals with crypto in such ways. Cryptocurrencies received as salaries do not fall under the 30% tax slab but “income from salary” taxation.
On the other hand, if you wish to hold assets and sell them later, you must pay a 30% tax on any appreciation in asset market value. The Income Tax Department has already announced Income Tax Return forms (ITR 1-6) and Income verification forms (ITR V) for the assessment year 2023-24 with a separate section for virtual digital assets income.
How much Tax do I pay on Crypto in India?
You must pay a 30% tax (excluding surcharge and cess) on any cryptocurrency trading, including selling or spending earnings. In addition, a 1% TDS tax will also be levied on sales of crypto assets that exceed ₹50,000 in a single fiscal year.
Note that if you receive crypto income through crypto mining or staking activities, you still have to pay income tax at your individual tax rate when it is received. Remember, crypto mining is not taxable, but if you earn crypto tokens due to mining, it must be filled as a business income. However, if you hold mined tokens for a while and sell them for more profits, the 30% tax is applicable on those gains.
For instance, if you mined Rs 10,000 worth of bitcoins but if you held on to them for the next two years and the price of those Bitcoins increased to Rs 15,000, you would have to pay a 30% tax on the profit of Rs 5000.
The 30% tax is applicable regardless of the type of income, as there is no distinction between income from investments and revenue from businesses. Additionally, cryptocurrency is subjected to taxes irrespective of short-term or long-term profits.
However, investors are concerned as the Income Tax Department still needs to clarify how crypto revenue would be taxed. When submitting the return for FY 2022-2023, taxpayers could declare income as capital gains if investments are held for investment purposes. Also, taxpayers were allowed to address earnings as business income if held for trading purposes.
As per Union Budget 2022, a 30% tax rate came into effect as of April 1, 2022, and a 1% TDS rate from July 1, 2022. Every time you do any of the following transactions, you become liable to pay a 30% crypto tax.
- Buying crypto using Rupees or another fiat cash.
- Trading stablecoins and other cryptocurrencies.
- Using cryptocurrency to purchase goods and services.
If any of these transactions exceed ₹10,000, it will be taxed by an additional 1%. So, is there any way that you could avoid crypto tax in India? Read on to know more.
Also Read: Digital Rupee: What Indians Need to Know
How can I avoid Crypto Tax in India?
You can not avoid crypto tax in India, but it can be reduced. You can minimize crypto tax in India by getting indirect exposure to cryptocurrency without purchasing it directly.
Interestingly, some of the recently launched portfolios by different international investment platforms enable Indian cryptocurrency investors to get exposure to a specific digital currency without purchasing it or directly investing in it. Such indirect exposure allows you to enjoy cheap taxation as a cryptocurrency investor.
Remember that no deduction will be allowed while reporting income from the transfer of digital assets except the cost of acquisitions. Moreover, the acquisition cost will not be considered to be the infrastructure costs incurred in minting virtual digital assets (VDA) (e.g. crypto assets). Also, capital expenditures are not allowable as deductions.
As per provisions of the proposed section 115BBH to the Income-tax Act, 1961, loss from VDA cannot be set off against income arising from the transfer of another VDA.
Will the Indian Govt reduce the Crypto Tax?
The Indian government has already put a bar or freeze on most of the crypto profits for investors and traders with its heavy 30% crypto tax. The Union Budget 2023-2024 needs to clarify the set of regulations that the crypto community was anxiously awaiting. The crypto tax regime is the same as that of the year 2022, and it is said that crypto would be the topic of the G20 presidential meeting.
The issue of regulating crypto assets will be discussed at the G20 meeting. Finance minister Nirmala Sitharam said, “Crypto is heavily tech-led and less of human intervention. We are talking to all nations that if a regulation has to be framed then one country cannot frame it alone. So we are speaking to all for forming a Standard Operating Procedure (SOP) so that it is effective.”
“So all these are part of discussion. The process of discussion is on in G20,” added Sitharaman.
Takeaway:
Deciding how to go around crypto tax might need to be clarified due to the lack of definite clarity. However, you can start by considering all the crypto assets you’ve owned before April 2022. The tax would be applicable at the end of this financial year, i.e., during the assessment year of 2023-24.
You must record INR amounts during any sale of your crypto assets, as tax will be paid in INR and not cryptocurrencies. If there are any profits on virtual digital assets, then you have to file returns by filing the form referred to as Income Tax Return 1,2,3 or 4 as applicable. Businesses or institutions must file returns using forms 5 or 6, as relevant.
