What are Crypto taxes in India?

In layman terms, crypto means secret or concealed. Similarly, a secret currency that is encrypted and used over the internet via a blockchain network is known as crypto-currency. There are multiple cryptocurrencies in the world like Bitcoin, Ethereum, Solana, and others. Bitcoin is the Usain Bolt of the crypto world that has delivered multi-fold returns for its investors in merely 3-4 years time. It is estimated that around 15% of the total Indian population aged between 18 and 60 years have invested in crypto. This happened because crypto gave multi-bagger returns and was tax-free. But things changed in Budget 2022 when a new tax regime was introduced. Capital gains from crypto will now be charged at flat 30% as crypto taxes.

What are crypto taxes?

• As per section 115BBH of the Income Tax Act, all gains made from the transfer of digital assets will be charged a flat 30%.

For example: If you earned ₹2,00,000 as capital gains on a trade, then you will be charged ₹60,000 as tax at a flat 30%.

• No deduction will be allowed as per the loss set-off.

For example: Say, you earned ₹2,00,000 as capital gains on a trade and incurred a loss of ₹50,000 on another trade. This does not imply that you will be taxed at ₹1,50,000. Instead, you will be taxed at ₹2,00,000 only.

Tax Deducted at Source for Cryptocurrencies

• Furthermore, as per section 194S of the Income Tax Act, you will be charged 1% TDS also to keep a track of transactions.
• The requirement to deduct 1% of the consideration applies irrespective of whether the consideration is in cash, partly in cash and partly in consideration for another VDA, or in consideration for only another VDA. 
• The tax will be imposed on the owner of the blockchain on which digital assets are traded (whether or not they are residents in India) as per Indian e-commerce rules.
• Moreover, as per Section 206AB of the Income-Tax Act, 1961, if any person has failed to file their ITR and the TDS is mounting to more than ₹50,000 every year, then the TDS will be deducted at 5%.

When can people incur crypto taxes?

• If you are working in an organization and trading in cryptocurrency, you will be taxed as per your income tax slab.
• Capital gains made on crypto investments will be taxed at a flat 30% from FY23 irrespective of your tax slab.
• The gifting of digital assets will attract tax in the hands of the receiver.

Lack of clarity on crypto taxes

• The decision to tax crypto is not indicative of the legalization of cryptocurrencies in India.
• The government has not prescribed the manner in which crypto ought to be valued. This will further reduce faith in the Indian tax regime.
• The new tax is aimed at discouraging investment in these assets.

Can we avoid paying a 30% tax on cryptos?

• No, it will be unlawful to avoid taxes. However, gains booked before April 2022 will not inculcate any taxes. This will surely save you some taxes for the first time.

Although the government has introduced crypto taxes and its own digital currency, people are still unclear about the regulations. The government has been saying repeatedly that crypto is illegal. Meanwhile, have you booked your profits and saved crypto taxes yet?

Do you think crypto should be legalized in India?

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