HomeGENERALWhat is Cryptocurrency Taxation in India?

What is Cryptocurrency Taxation in India?

Cryptocurrency, often termed digital or virtual currency, has shifted the dynamics of global finance. Predominantly decentralized, these currencies offer transparency and security due to their foundation in blockchain technology. Among them, Bitcoin, Ethereum, and Solana stand out. But with its rising influence on global economies comes the question of its regulatory and taxation landscape, especially in countries like India.

What Are Cryptocurrencies and Why Do They Matter?

In layman terms, the term ‘crypto’ represents ‘secret’ or ‘concealed’. In this context, cryptocurrency is a concealed digital currency encrypted and used over a blockchain network. With the likes of Bitcoin, termed the “Usain Bolt” of the crypto realm, delivering multi-fold returns within a short span, it’s no wonder that an estimated 15% of the Indian population between the ages of 18 and 60 has ventured into crypto investments. The primary allure? Stellar returns and previously tax-free benefits. However, the taxation scenario shifted with the introduction of new guidelines in Budget 2022.

crypto taxes

How Did the Taxation Scenario Change for Cryptocurrencies in India?

Capital gains from cryptocurrency transactions are now subject to a flat tax rate of 30%.

Understanding capital gains tax is essential not just for cryptocurrency but for all investments. Our blog, ‘Tax on Capital Gain: STCG, LTCG, and Dividends,’ provides a comprehensive overview of how short-term and long-term capital gains are taxed in India, along with dividends. This insight will help you better manage the tax implications of your investment portfolio, ensuring you’re making the most tax-efficient decisions.

So, if you gain ₹2,00,000 from a trade, you’ll be levied ₹60,000 as tax. Intriguingly, the system doesn’t consider set-offs from losses. This means if you gain ₹2,00,000 on one trade but have a loss of ₹50,000 on another, the taxable amount remains ₹2,00,000.

Calculating your income tax can be complicated, especially with different sources of income such as capital gains from cryptocurrencies. Our blog, ‘Income Tax Calculation Process: Slab India,’ breaks down the income tax slabs and how to calculate your taxes based on your total income. This information is crucial for anyone looking to understand their tax liabilities and plan their finances accordingly.

Are There Any Deductions at the Source for Crypto Transactions?

It’s vital to be aware of the types of transactions that attract close scrutiny from the Income Tax Department. Our blog, ‘Transactions That Income Tax Department Keeps a Close Watch On,’ details the financial activities that are most likely to be monitored, helping you ensure compliance and avoid potential audits. Understanding these transactions can guide you in maintaining clear and lawful financial records, especially in areas as scrutinized as cryptocurrency trading.

Yes, as stipulated by Section 194S of the Income Tax Act, a 1% TDS is applied to keep track of transactions. This deduction is imposed irrespective of the transaction’s nature, be it in cash, a mix of cash and another VDA, or exclusively another VDA. The owner of the blockchain where the transactions occur is the one who’s taxed, aligning with Indian e-commerce regulations.

What Happens if One Doesn’t File Their ITR with a Significant TDS?

According to Section 206AB of the Income-Tax Act, 1961, failing to file your ITR when your TDS exceeds ₹50,000 annually will lead to a TDS deduction at 5%.

When Are Individuals Liable for Crypto Taxes?

Employees dabbling in cryptocurrency trading will be subjected to taxes according to their specific income tax brackets. From FY23 onwards, capital gains on such investments will attract a flat 30% tax, irrespective of one’s slab. Furthermore, if someone gifts you digital assets, you, as the receiver, will be taxed.

Is There a Clear Framework for Crypto Taxes in India?

Although the government has delineated the tax structure for cryptocurrencies, it doesn’t signal their legalization in India. The lack of a clear valuation method for cryptocurrencies casts doubts on the Indian tax structure. Some even opine that this tax introduction aims to deter individuals from crypto investments.

Is It Possible to Evade the 30% Crypto Tax?

Evading taxes is unlawful. Nevertheless, any gains realized before April 2022 are exempt from taxes, providing a brief respite for investors.

How Can One Stay Compliant with Crypto Taxes in India?

With tools like ClearTax introducing India’s only end-to-end crypto filing portal, tax compliance has become more manageable. This platform automatically consolidates data from over 100 exchanges, helping in computing taxes and identifying tax-saving opportunities.

In conclusion, as the world of cryptocurrency expands, offering unprecedented financial opportunities, it becomes imperative to stay abreast of taxation guidelines to ensure compliance and avert legal complications. With the repeated emphasis from the government on the illicit nature of cryptos, have you safeguarded your investments and navigated the crypto tax maze in India?

What’s Your Opinion on Cryptocurrency Legalization in India?

While debates continue, one can’t deny the significant impact of cryptocurrencies. Do you believe it’s high time for crypto to attain legal status in India? Comment below.

Subscribe to the LLA Newsletter “The Success Circle” for such insightful information every week and level up your tax knowledge! We share insightful information about tips and tricks that contribute to making you financially knowledgeable.

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