Understanding the Taxability of Cryptocurrency in India

Cryptocurrencies have gained significant popularity in recent years, and their taxability has become a topic of interest, especially in India. While the Indian government did not have an official stance on the categorization and taxation of crypto assets until 2022, the landscape has changed. In this article, we will explore the current tax regulations surrounding cryptocurrencies in India and shed light on key considerations for taxpayers.

Taxes on Cryptocurrency in 2023:

When it comes to cryptocurrency trading, selling, or spending earnings in India, a 30% tax is applicable. Additionally, a 1% Tax Deducted at Source (TDS) is imposed on sales of cryptocurrency assets exceeding ₹50,000 in a single fiscal year. Individuals engaged in other forms of cryptocurrency income, such as mining or staking, may also be subject to income tax at their individual tax rates upon receipt.

How Cryptocurrency is Taxed in India:

Under Section 2(47A) of the Income Tax Act, cryptocurrencies are classified as “Virtual Digital Assets” (VDAs). This definition encompasses various crypto assets, including cryptocurrencies, NFTs, tokens, and more. The 2022 budget introduced Section 115BBH, imposing a 30% tax (plus surcharge and cess) on gains from cryptocurrency trading starting from April 1, 2022. This tax rate is equivalent to the highest income tax band in India, irrespective of the type of income or its duration. Furthermore, a 1% TDS is applicable on the transfer of cryptocurrency assets from July 1, 2022, if the transactions exceed ₹50,000 in a financial year (or ₹10,000 in specific cases).

Key Points to Note about Crypto Tax in India:

• Cryptocurrency asset profits are subject to a 30% tax rate (plus surcharge and cess).
• Section 115BBH of the tax code governs cryptocurrency profits.
• No option for a lower long-term capital gains tax rate is available.
• Deductions other than purchase costs are not permitted.
• A 1% TDS is levied on the transfer of VDAs.
• The 30% tax rate is effective from April 1, 2022, and the 1% TDS rate from July 1, 2022.

When are Taxes Due on Cryptocurrencies in India?

You may be liable to pay the 30% tax rate whenever you engage in the following transactions:

• Purchasing cryptocurrency using Indian rupees or any other fiat currency.
• Trading stable coins and other cryptocurrencies.
• Using cryptocurrency to make purchases.

However, there are instances where the 30% tax rate may not be applicable. In such cases, tax will be due upon receipt at your individual tax rate. Examples include:

• Receiving cryptocurrency as a gift (refer to gift section for details).
• Coin mining (refer to mining section for details).
• Using cryptocurrency for payments.
• Earning stake benefits.
• Receiving airdrops.

TDS on Crypto Assets:

A 1% TDS is charged on the transfer of crypto assets. TDS is collected at the time of the transaction or source. The primary purpose of this 1% TDS is to ensure transaction reporting and track investments made by Indian investors in cryptocurrency. It is important to note that a transfer refers to a change of ownership, such as a sale, exchange, or expenditure, and not merely transferring funds between wallets.

Set Off of Losses

Losses from cryptocurrency investments cannot be offset against cryptocurrency profits or any other gains or income, as per Section 115BBH. Furthermore, apart from the acquisition cost or purchase price, no deductions other than purchase costs are allowed for cryptocurrency investors