In India, the taxation on cryptocurrency and other virtual digital assets (VDAs) is well-defined and governed by specific sections of the Income Tax Act. Here is a detailed breakdown of the tax implications for crypto assets in India.
Tax is on Crypto in India
Tax Rate on Crypto Profits
The primary tax rate on crypto profits in India is 30%, along with additional surcharges and a 4% cess.
- Flat Tax Rate: Profits from trading, selling, or spending crypto assets are taxed at a flat rate of 30% under Section 115BBH of the Income Tax Act. This rate applies regardless of whether the income is treated as capital gains or business income.
- Applicable Surcharge and Cess: In addition to the 30% tax, applicable surcharges and a 4% cess are also levied on the profits.
Tax Deducted at Source (TDS)
Apart from the 30% tax on profits, there is also a Tax Deducted at Source (TDS) applicable on crypto transactions.
- TDS Rate: A 1% TDS is deducted on the sale of crypto assets, effective from July 1, 2022. This TDS applies to transactions exceeding ₹50,000 (or ₹10,000 in certain cases) within a single financial year.
- Deduction Mechanism: The TDS is deducted from the final sale amount, not just the profits. This means that even if you incur a loss on a transaction, the TDS will still be deducted.
Calculation of Crypto Tax
To calculate the tax on crypto in India, you need to follow these steps:
- Determine Cost Basis: Calculate the cost basis, which is the amount you paid to acquire the cryptocurrency or its fair market value in INR on the day you received it. Note that transaction fees such as buy or sell fees are not included in the cost basis.
- Calculate Profits: Subtract the cost basis from the sale price in INR for sales, or from the fair market value in INR on the day of disposal for other transactions like trading or spending crypto.
Reporting Crypto Taxes
Crypto taxes in India must be reported in the Income Tax Return (ITR) forms.
- ITR Forms: Profits from crypto assets are reported under Schedule VDA in the ITR forms 1 to 4, depending on the individual’s income sources and circumstances.
- Filing Deadlines: The typical deadline for filing ITR is July 31, although extensions may occur due to e-filing system issues.
Specific Scenarios
There are several specific scenarios where the tax treatment may differ:
- Mining, Staking, and Airdrops: Income from activities like mining, staking, or receiving airdrops may be taxed at the individual’s tax slab rate upon receipt. However, if these cryptocurrencies are later sold, traded, or spent, the 30% tax on profits will apply.
- Gifts: Receiving cryptocurrency as a gift from close family members or up to ₹50,000 from friends and relatives is tax-free. However, if the gift is later sold, traded, or spent, the 30% tax on profits will apply.
- Holding and Transferring: Transferring crypto between your own wallets and holding crypto is tax-free in India.
Also Read: How Does Crypto Make Money? A Comprehensive Guide
Losses and Expenses
- Losses: Losses incurred in crypto cannot be offset against any income, including gains from cryptocurrency. This means that crypto investors cannot offset previous year losses from crypto assets while filing ITR for the current year[.
- Expenses: Except for the acquisition cost or purchase cost, no other expenses related to crypto activities can be claimed as deductions.
Compliance and Penalties
Compliance with crypto tax regulations is crucial to avoid penalties.
- TDS Compliance: Ensuring that the 1% TDS is deducted and filed correctly is essential. The buyer is responsible for deducting TDS and forwarding it to the central government. Indian exchanges often automate this process.
- ITR Filing: Timely filing of ITR and reporting crypto gains under Schedule VDA is mandatory. Failure to comply can result in penalties and interest on the tax due.
Conclusion
In India, the taxation of cryptocurrency and other virtual digital assets is governed by clear and specific regulations. A 30% tax rate applies to profits from crypto transactions, along with a 1% TDS on the sale of crypto assets. Understanding these tax implications and ensuring compliance with TDS and ITR filing requirements is essential for crypto investors to avoid legal and financial repercussions. Staying informed about the latest tax laws and using resources like crypto tax calculators can help streamline the tax management process for crypto transactions in India.