Crypto is based on blockchain technology, a distributed ledger system that records transactions securely and transparently. Crypto is currently not a legal tender in India but due to the wide array of its acknowledgement and acceptance among the mass users, it is now subjected to taxes. The government of India has introduced a 30% tax on profits from trading, selling, or spending any kind of crypto or virtual digital asset, as well as a 1% TDS on crypto transactions exceeding a specific limit.
Understanding Crypto Gain
Crypto Gain refers to the profit made from selling or exchanging crypto assets for more than their initial purchase price. Crypto Gain is subject to a tax of 30% in India.. Crypto gain can occur by buying low and selling high.
Calculating your crypto tax
As per the Finance Budget of 2022, the income from cryptocurrencies is calculated by deducting the cost of acquisition (the purchase price) from the sale price of the cryptocurrencies. The tax rate is 30% on such income, plus surcharge and 4% cess.
As per the applicable crypto tax in India, you cannot claim any deduction for expenses incurred for earning such income, such as transaction fees or exchange charges. You cannot offset or carry forward any loss from trading in cryptocurrencies.
To calculate the tax on your crypto gain, you need to follow the following steps:
- Determine your COA or (cost of acquisition). It is the amount at which you bought the cryptocurrency.
- Find out the same crypto’s FMV (Fair Market Value) on the selling date. It is the sum at which the cryptocurrency has been sold.
- Determine the gain by the following formula:
Fair Market Value – Cost of Acquisition
4. If you have made a profit on the transaction , then you need to determine the tax on the profit amount at 30% plus surcharge and 4% cess.
For example, you bought any cryptocurrency for Rs. 10 lakhs in January 2022 and sold the same for Rs. 15 lakhs in March 2022. Your income from transacting that cryptocurrency is Rs. 5 lakhs (15 lakh – 10 lakh). You must pay 30% of this income tax, which is Rs. 1.5 lakh (plus cess and surcharge) as applicable. You cannot deduct any expenses or losses incurred previously from this income.
TDS implications
The Indian government has introduced a 1% tax deductible at source (TDS) on transferring crypto assets from July 1, 2022. The crypto asset buyer must deduct 1% of the amount paid to the seller (an Indian resident) and deposit it with the income tax department. The TDS applies to transactions above Rs 10,000 or Rs 50,000 (whichever is suitable) on crypto-to-crypto and crypto-to-INR trades. The TDS is meant to capture transaction details and keep track of investments in crypto assets by Indian investors.
If you purchase crypto or NFT above Rs 50000 or Rs 10,000 (whatever is appropriate as per the scenario), you, as a buyer, need to deduct TDS of 1%, remit the same to the income tax department and file TDS return in Form 26Q or Form 26QE. Balance amount can be transferred to the seller’s bank account.
Note: If you are purchasing on Indian exchanges, you do not need to worry about TDS Compliance. Indian exchanges will only deduct TDS on behalf of buyers.
Taxable Cryptocurrency Events in India
As per the Finance Bill of 2022, the following situations have been sectioned under taxable crypto events in India:
1. Trading
Purchasing and selling cryptos for profit in India is denoted as capital gain which is subjected to Capital gains tax. Individuals who transfer cryptocurrency assets in a fiscal year will be taxed at a 30% rate on the profits earned from transferring such virtual assets, irrespective of whether it is short-term or long-term gain. Section 115BBH, introduced in the 2022 budget, mandates a consistent application of the 30% tax rate, regardless of capital gain’s nature.
2. Airdrop and Crypto Gifts
When it comes to receiving airdrops and crypto gifts, there are a few tax implications to keep in mind. Firstly, gifts up to ₹50,000 are tax-free, so if the value of the gift is within this limit, there is no need to pay any taxes on it. This includes airdrops, which are considered a form of gift.
However, if the gift exceeds ₹50,000 in a year from a non-relative, it becomes fully taxable at the applicable income tax slab rate. In the case of airdrops, the fair market value (FMV) in Indian rupees on the day of receipt is considered the acquisition cost.
If the recipient decides to sell the airdrop or gift at a later date, any subsequent sales are taxed at a rate of 30%. The cost of the gift for tax purposes will be the cost of the previous owner or the income that has already been taxed, depending on the circumstances. It’s important to keep track of the acquisition cost and any subsequent sales in order to accurately calculate the taxes owed.
3. Staking
When you stake your cryptocurrency, you earn rewards. But it’s important to remember that these rewards are taxable. You’ll need to pay taxes on the fair market value of the coins when you receive them. And when you sell, trade, or spend your staked coins, you’ll also need to pay Capital Gains Tax, just like you would with any other cryptocurrency.
The tax rate for staking income is based on your income tax slab rates. And if you make a profit when you sell your staked coins, you’ll need to pay a flat 30% tax on those gains.
Moving your coins to a staking pool or wallet generally doesn’t trigger taxes. When you transfer your assets between wallets, it’s usually tax-free. But keep in mind that any gas fees involved in the transfer are taxable separately.
4. Token Sales, NFTs and Margin Trading
Profits or gains obtained from token sales, NFTs or margin trading are subjected to a tax rate of 30% (along with 4% cess and surcharge), while each sale will incur a TDS of 1%, which will be deducted by the Buyer..
5. Stablecoins
Swapping any stablecoin with crypto is categorized as crypto for crypto trading. Hence, any gain on such an event is taxed at 30%.
6. Forks
If an individual receives cryptocurrency due to a fork, the coin value in INR on receipt is regarded as income and is, therefore, subjected to tax at Slab rates..
7. Referral Rewards
Any referral rewards are categorised as IFOS (income from other sources) and are subjected to the tax at slab rates..
8. Mining
The gains received from mining are categorised as either income from other sources or business income, based on the activity. If you mine as a hobby, the gain would be deemed as an Income from Other Sources(IFOS) and if you mine as a full-time activity, Income will be categorised as Business Income. They are taxed at a regular income tax slab rate while receiving such rewards. Any subsequent sale, exchange or spend transaction is taxed at 30%.
Conclusion
While it is essential to understand the tax implications of cryptocurrency transactions in India, seeking professional advice from a tax expert is always recommended. However, for those who want to simplify the process, KoinX offers a platform that can assist with calculating the taxes owed on crypto transactions. By connecting and uploading exchange statements, KoinX can quickly provide an accurate calculation of the sum of liable tax which helps relieve the stress of dealing with cryptocurrency taxes and ensure compliance with Indian tax laws.
