The cryptocurrency landscape in India has witnessed significant developments in recent years, particularly in terms of taxation. For instance, the 2022 Financial Budget introduced new laws and regulations regarding cryptocurrency taxation in India, making it difficult to keep up with the changes.
But don’t worry. This guide aims to provide comprehensive information on the tax laws regarding cryptocurrencies in India, covering multiple scenarios such as trading, airdrops, mining, NFTs, crypto donations, and more so that you don’t have to spend your precious time looking up tax laws for different scenarios. But before that, let’s understand what’s Virtual Digital Assets (VDA).
Virtual Digital Assets (VDAs):
To understand the taxation of cryptocurrencies in India, it is essential to understand the concept of virtual digital assets (VDAs). These assets exist in digital form but hold significant value similar to physical assets. Examples of VDAs include Bitcoin and Ethereum.
Taxation of cryptocurrencies:
Before 2022, cryptocurrencies and related virtual assets were not subject to taxation in India. The 2022 Financial Budget introduced changes in this regard. Investors and traders are liable to pay a 30% tax (plus applicable surcharge and 4% cess levied by the Central Board of Direct Taxes) on the profits arising from the transfer of crypto assets on or after April 1, 2022.
Section 194S of the Income Tax Act also imposes a 1% Tax Deducted at Source (TDS) on the transfer of crypto assets if the transaction exceeds INR 50000 and INR 10000 in certain cases in the same financial year. Indian exchanges automatically deduct this TDS, while individuals trading on foreign exchange have to file their TDS returns manually.
Different scenarios and taxes:
The guide delves into specific scenarios and explains how they are taxed in India. Here are some key highlights:
Tax on crypto gains
Profits generated from cryptocurrency investments, including capital gains and trading gains, are subject to taxation at a 30% rate.
Tax on airdrops
Airdrops, which involve receiving initial tokens or coins before the launch of a crypto project, are subject to taxation. The taxation of airdrops depends on factors such as the value of the tokens at the time of receipt and whether they are traded on exchanges. For example, receiving 100 XYZ tokens valued at Rs. 10 each would result in a taxable income of Rs. 1000.
Tax on crypto gifts
Gifting cryptocurrencies or virtual assets is the act of giving them as a present to someone else. When you receive cryptocurrencies or virtual assets as a gift from someone who is not a relative, you may be subject to a tax if the value exceeds INR 50,000. However, if the value of the gift is below Rs 50,000, you won’t have to pay any tax on it.
Note: Gifts & Airdrops up to ₹50,000 per year are not taxable.
Tax on NFT trading
Non-fungible tokens (NFTs) have gained significant popularity, and their trading activities are now subject to taxation. Buying NFTs with fiat currency is not taxable, but purchasing them with cryptocurrencies triggers taxation. NFTs are taxed at 30% from April 01, 2022, and a 1% TDS is deducted from each sale.
Tax on crypto mining
Mining income generated from crypto mining is also taxable at an income tax slab rate. The mining income can be classified as either income from business or other sources, depending on the type of mining activity.
Tax on crypto staking
Crypto staking, which involves earning rewards for holding and validating transactions on a blockchain network, is subject to taxation. The staking income is taxed as income from other sources at the applicable income tax slab rates.
Tax on crypto salary
Receiving a salary in cryptocurrency is taxable in India. Crypto salaries are taxable, and individuals must pay taxes based on the applicable income tax slabs.
Tax on crypto referrals
Referral bonuses earned from cryptocurrency platforms or services are also subject to taxation in India. These bonuses are considered income and are taxed based on the applicable slab rates.
Tax on token sales (ICOs and IDOs)
Initial Coin Offerings (ICOs) and Initial DEX Offerings (IDOs) are subject to taxation in India. The tokens received through ICOs and IDOs are treated as income from VDAs and are taxed at 30%.
The taxation of cryptocurrencies in India has undergone significant changes with new laws and regulations. Stay updated on the latest regulations and guidelines for crypto taxation in India, and educate yourself on best practices to ensure compliance and make tax filing easier.
It’s important to track all your transactions across exchanges and wallets, utilise crypto taxation software for accurate tax calculations, and seek professional assistance if needed for filing tax reports. Tracking and managing your crypto transactions manually can be a hassle, especially with multiple accounts and exchanges. Simplify the process using a crypto tax tool that automates your tax tracking, calculation, and reporting. Understanding and complying with these tax obligations is crucial for individuals and businesses engaged in crypto transactions.
Disclaimer
Views expressed above are the author’s own.
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