What are Cryptocurrencies?

Cryptocurrencies are digital or virtual currencies that use cryptography for security, making them difficult to counterfeit or double-spend. Unlike traditional currencies (fiat money) issued by governments, cryptocurrencies operate on decentralized networks using blockchain technology. Notable examples include Bitcoin, Ethereum, Litecoin, and Ripple. Cryptocurrencies are used for various purposes like peer-to-peer transactions, sending money across borders, or as an investment. They can be traded on exchanges, stored in digital wallets, and even used for purchasing goods and services.

Is Crypto Taxed in India?

Yes, cryptocurrency is taxed in India. The Indian government recognized cryptocurrencies as Virtual Digital Assets (VDAs) in the 2022 Budget, introducing a tax framework for these assets.

Crypto Tax Rate in India

In India, profits from trading, selling, or spending cryptocurrencies are taxed at 30%. Additionally, a 1% Tax Deducted at Source (TDS) is applied to the sale of crypto assets exceeding ₹50,000 (or ₹10,000 in specific cases) in a financial year. Income from activities like staking, airdrops, or mining is also taxable at the applicable individual tax rate.

For Details on GST on Crypto Currency

Latest Updates on Crypto Tax in India

2024 Updates

• The Income Tax Return (ITR) for FY 2023-24 includes a specific section, Schedule Virtual Digital Assets (VDA), for reporting gains from cryptocurrencies and other VDAs.
• The deadline for filing ITR for FY 2023-24 is July 31st, 2024, with a belated return filing option available until December 31st, 2024.

2023 Updates

• Cryptocurrency income must be declared as capital gains if held for investment or as business income if held for trading.
• Business income should be reported using ITR-3, not ITR-2.
• Penalties apply for failure to deduct or deposit TDS under sections 271C and 276B.

2022 Updates

• Clarifications on Section 115BBH stated that losses from VDAs (cryptocurrencies) cannot be offset against gains from other VDAs or income sources.
• A 30% tax on profits from cryptocurrencies became effective from April 1, 2022.
• Section 194S introduced a 1% TDS on cryptocurrency transactions exceeding ₹50,000 or ₹10,000 depending on the filing status.

Overview of Cryptocurrency Taxation in India

Definition of Virtual Digital Assets (VDAs)

Under Section 2(47A), VDAs encompass all types of crypto assets, including cryptocurrencies, NFTs (Non-Fungible Tokens), and tokens.

Crypto Tax Rates Under Section 115BBH

Section 115BBH, introduced in the 2022 budget, mandates a 30% tax (plus applicable surcharge and 4% cess) on profits from trading cryptocurrencies. This tax rate applies to both investment and business income, with no differentiation between short-term and long-term gains.

Section 194S: 1% TDS on Crypto Transactions

Section 194S imposes a 1% TDS on crypto asset transfers from July 1, 2022, if the transaction exceeds ₹50,000 (or ₹10,000 in specific cases). This ensures proper tracking of crypto transactions.

Reporting Crypto Income

Types of Crypto Income

1. Capital Gains: If assets are held for investment purposes.
2. Business Income: If assets are held for trading purposes.

Tax Return Filing for Crypto Assets

Since FY 2022-23, a new section, Schedule Virtual Digital Assets (VDA), has been included in ITR forms to specifically report gains from cryptocurrencies and NFTs. This continues in FY 2023-24.

30% Crypto Tax Rate in India: When Does It Apply?

In India, the 30% tax rate on cryptocurrency applies to:

1. Selling Cryptocurrency for INR: If you sell crypto for Indian Rupees or other fiat currencies.
2. Trading Cryptocurrency for Another Cryptocurrency: When exchanging one cryptocurrency for another.
3. Using Cryptocurrency for Purchases: If you use crypto to purchase goods or services.

However, certain activities may be taxed differently, such as:

• Receiving cryptocurrency as a gift (specific gift tax rules apply).
• Mining cryptocurrencies.
• Being paid in cryptocurrency for services or work.
• Earning rewards from staking or airdrops.

If these cryptocurrencies or tokens are later sold, traded, or spent, any profits made are subject to the 30% tax.

Which Crypto Transactions are Liable to Tax in India?

The following cryptocurrency transactions are subject to the 30% tax on profits:

1. Spending Cryptocurrencies: Using cryptocurrencies to purchase goods or services.
2. Exchanging Cryptocurrencies: Trading one cryptocurrency for another.
3. Trading Cryptocurrency for Fiat Currency: Trading crypto for INR or any other fiat currency.
4. Receiving Cryptocurrency as Payment for Services: Cryptocurrency earned as payment for services is treated as income and taxed.
5. Receiving Cryptocurrency as a Gift: Cryptocurrency received as a gift is taxable for the recipient (with certain exemptions for gifts from close family).
6. Mining Cryptocurrency: Earnings from mining are taxable.
7. Drawing a Salary in Crypto: If paid in cryptocurrency, it is treated as income and taxed accordingly.
8. Staking Cryptocurrency: Earnings from staking rewards are taxable.
9. Receiving Airdrops: If you receive crypto tokens via airdrops, their value is taxable.

Summary of Crypto Transactions and the Applicable Rate

By understanding these regulations, crypto investors can ensure compliance with tax laws and avoid penalties related to crypto transactions in India.