What Is Tax On Crypto In India And How It Is Calculated
Cryptocurrencies are decentralised digital currencies or assets based on blockchain technology, which is a public digital ledger that records transactions and balances. Due to the speculative nature of the coins and the volatile crypto market, it has taken the Government a while to be clear about Crypto tax in India. In the 2022 budget, Finance Minister Nirmala Sitharaman announced a taxation model for cryptocurrencies.
This article will help you understand and calculate the tax on crypto in India. Note, that these are only applicable for all transactions post-April 1, 2022. Read on!
What is Crypto Tax?
Crypto tax is a tax on the income or gains from investing in or selling cryptocurrencies. Crypto taxation varies from country to country and often depends on whether the crypto asset is considered a security, commodity, or currency. In some cases, crypto assets may be subject to capital gains tax, Value-Added Tax (VAT), or other forms of taxation.
The Indian Government uses the phrase ‘Virtual Digital Assets’ (VDAs) when referring to cryptocurrencies. This terminology refers to cryptocurrencies and digital tokens such as NFTs.
How Much is the Tax on Cryptocurrency in India?
Cryptocurrency taxation in India is relatively straightforward:
- The tax rate depends on how long the digital assets were held:
- If assets are held for a long term (> 3 years ), then a 20% tax rate with indexation benefits is applicable.
- If assets are held for a short term (<= 3 years), then a 30% tax on income from the transfer is applicable.
- A tax of 1% at source on all transactions (or TDS – Tax Deducted at Source) is also levied. The threshold for TDS is Rs 50,000 a year.
While the taxes on gains are already in effect, the provisions on TDS will take effect only from July 1, 2022.
Also Read: List Of 7 Most Popular Types of Cryptocurrencies In India
How to Calculate Crypto Tax?
The crypto tax is calculated as a percentage of the income or gains from investing in or selling cryptocurrencies. And the applicable deductions will vary depending on whether the crypto transactions are declared as investments or business income.
1. In case of gain
In case of gain from selling crypto assets, the tax is calculated based on the difference between the selling and purchase prices. If the crypto asset is held for less than a year, it is considered a short-term gain and is subject to regular income tax rates. If the crypto asset is held for more than a year, it is regarded as a long-term gain and is subject to lower capital gains tax rates.
For example, if you buy Rs.10,000 worth of cryptocurrencies and sell them for Rs.40,000, the resulting gain is Rs.30,000.
In the short term: you would be subject to 30% income tax on the Rs.30,000 gain, i.e., you are liable to pay Rs.9,000 in taxes.
In the long term: you would be subject to 20% income tax on the Rs.30,000 gain, i.e., you are liable to pay Rs.6,000 in taxes.
2. In case of loss
Unlike with equity or traditional stock markets, under current Indian laws, the loss from selling crypto assets cannot be used to offset other capital gains in the same year. This means that your profits will be taxed regardless of the magnitude of your losses. Additionally, losses from the transfer of crypto assets cannot be carried forward to the following year.
That means even if you incur a net loss, you might still have to pay taxes on whatever gains were made.
For example, you bought Rs.20,000 worth of crypto and sold it the next month for Rs.30,000 resulting in a Rs 10,000 gain.
Now say that you again buy Rs 20,000 of crypto, but this time you sell it for Rs.10,000 resulting in Rs.10,000 loss.
That means you made neither a gain nor a loss on the net.
If losses could be offset like stock market trades, you would not have to pay any taxes.
However, under Indian crypto laws, you would still be subject to 30% income tax on the Rs.10,000 gain, i.e., you are liable to pay Rs.3,000 in taxes.
3. In case of business
If the crypto transactions are reported as business income, the tax will be calculated based on the net income. All the direct and indirect business expenses can be deducted from the business income to calculate the net income. The net income is then subject to regular income tax rates.
4. In case of other sources of income
No formal clarification has been issued by the Government about crypto taxation when transactions are reported as other sources of income.
Also Read: What Is Crypto Market Cap And Why Is It Important?
Final Word
While the Government’s laws on Crypto tax in India are currently clear, keeping an eye on the global regulatory laws on crypto is always a good idea. The Government has stated they won’t formulate any concrete regulations until there is a global consensus on how to treat these digital assets.
*Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions.
FAQs
Ans:The Indian government and RBI have expressed grave concerns about the Crypto Industry, stating that the technology’s decentralized nature means it could be used to launder money, fund terrorist operations, or hide transactions altogether. In addition, some have speculated that the government hopes to discourage retail investors hoping to protect them from the high volatility of the crypto markets.
Ans: When crypto coins are self-generated, aka obtained through the process of mining, the coins will still be taxed based on the standard income tax rates, and the cost of mining will not be deductible.
Ans: For the 2022 Union Budget Speech, the Finance Minister stated that all virtual digital assets such as cryptocurrencies and NFTs received as gifts are also eligible for taxation. The recipient will be taxed under the gift tax.
This provision will come into effect from FY 2022-2023.
Ans: Most other countries have not adopted similar laws. In the UK & US, for instance, taxation of gains or losses to digital assets is treated the same as stocks are. And they allow you to offset losses as well.
There are certain extreme examples, though – on both ends of the spectrum – China, for instance, has completely banned crypto trading, while some nations like Thailand and Portugal either exempt traders from VAT or effectively have a zero capital gains tax on crypto.
Ans. No, cryptocurrencies operate in a grey zone; they are neither legal nor illegal in India. Finance Minister Nirmala Sitharaman has formally stated that taxation does not imply granting legal status. The government has not officially tabled the exact legality and regulatory framework that the crypto industry will face in India.
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Disclaimer: Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions.
Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
