Taxation on Earnings from Crypto Assets in India
India’s Cryptocurrency Tax
In 2022, the Union budget imposed a 30% tax on all virtual assets, including cryptocurrencies. According to the established standards, any income derived from capital gains on the transfer of digital assets would be subject to taxation and would be owed by the recipient, even those who receive such assets as gifts. Other notable aspects include no cost deductions other than purchase costs. Then, any expenses such as transaction costs or mining costs will not be tax deductible. There is also no mechanism for losses in one digital currency to be offset against profits in another. This means that any loss incurred through cryptocurrency trading (indeed, a recent 12% drop in Bitcoin’s market value wiped out $1 trillion) cannot be offset against any other type of income, such as salary or property income, and cannot be carried forward to offset against other crypto income in future years. That is, a profit of Y on one investment and a loss of X on another results in a tax on Y-X as well as Y. Despite the fact that the legality of bitcoin and other digital assets in the country is debatable, any gains made will be subject to standard income taxation regulations, as well as potential surcharges, cess, and TDA (estimated at 1%), imposed on the recipient of any VDAs.
Various Proposed Cryptocurrency Classifications
Gains from tax on crypto might be categorized as business income, capital gains, or other income depending on the nature of the transactions, trade volume, frequency, and investor intentions.
Business Income:
Increased trade volume and frequency will be considered business income. Then, like in the country, all direct and indirect expenses might be subtracted, and income taxed according to tax slabs. Another consequence would be the implementation of the Goods and Services Tax (GST). While there are no precise recommendations on GST standards for crypto trading, a general 18% may be applicable, particularly if the firm turnover exceeds Rs 20 lakh.
Capital gains/losses:
Low transaction volume and investor expectations of profits from long-term appreciation would be considered as capital investments subject to capital gains taxation. As a result, any taxes imposed on these capital gains would be based on timescales, i.e. short and long term. Short-term gains are taxed at 15%, whereas long-term profits (more than 36 months) are taxed at 20%.
Other sources of income:
If categorized as such, any gains from crypto trading would be taxed in the same way that other types of income are taxed under current income tax legislation. The RBI is debating whether to classify cryptocurrency as a “speculative business revenue” liable to the highest tax rates.
The TDS Concept
The government has also legislated a 1% TDS that can be deducted in order to assess total immediate cash flow, which can be recorded separately with the government during income tax filings. The Indian government introduced the notion of a TDS to collect tax at the source of income. A 1% tax on gains on cryptocurrency will be remitted instantly to the Central Government’s account. According to GoI standards, whenever a transaction exceeds 10,000 rupees (approximately $132), the buyer (‘the deductor’) must deduct the 1% TDS on behalf of the seller (‘the deductee’). Smaller trades would also be taxed if they exceeded 50,000 rupees in a fiscal year. BINOCS, a crypto wallet tax tracker, is an excellent method to keep track of your assets. It can assist you in tracking your investing objectives and providing you with relevant market information. Check out the website now.
