Cryptocurrencies have captured the attention of investors and tech enthusiasts in India and around the world. In 2022, the Indian government acknowledged these digital assets, known as Virtual Digital Assets (VDAs), and introduced taxation rules for them. As of 2023, understanding cryptocurrency taxes in India is crucial for anyone involved in this burgeoning space. In this blog, we are going to see everything about the Cryptocurrency Taxes in India. We will break down the essentials, including tax rates, TDS, and income tax implications, to help you understand the Indian cryptocurrency tax scenario.
Is Crypto Currency Taxable in India?
Cryptocurrency is indeed subject to taxation in India. In the 2022 Budget, the Indian government formally recognised cryptocurrencies as Virtual Digital Assets (VDAs), ushering in a structured framework for VDA taxation.
When it comes to the tax implications, here’s what you need to know:
30% Tax on Profits: Whether you’re trading, selling, or using cryptocurrency for transactions, profits from these activities are subject to a uniform 30% tax rate.
1% Tax Deduction at Source (TDS): If your cryptocurrency asset sales exceed ₹50,000 (or ₹10,000 in specific cases) in a single financial year, a 1% Tax Deduction at Source (TDS) is applied. It’s essential to note that additional income earned from activities like staking or mining may also incur Income Tax at your individual tax rate.
In 2023, there have been significant changes in how cryptocurrency taxes work in India:
Investors must now report their income from cryptocurrencies. If you hold cryptocurrencies for investment, it’s considered capital gains. If you use them for trading, it’s business income. If you have business income, use ITR-3 for your tax filings.
The Income Tax Return (ITR) form for the 2022-2023 fiscal year has been updated. It now has a specific section for reporting gains from cryptocurrencies and other Virtual Digital Assets. This section is called Schedule Virtual Digital Assets, and we have a helpful guide to assist you in using this form.
Penalties have been introduced for those who fail to deduct the required Tax Deduction at Source (TDS) or don’t deposit it correctly. You can find details of these penalties in sections 271C and 276B of the tax code.
It’s crucial to meet the deadline for filing your Income Tax Return (ITR) for the 2022-2023 fiscal year, which is July 31st, 2023. If you miss this deadline, you can still file a belated return until December 31st, 2023.
How Crypto Is Taxed in India
Cryptocurrency Taxes in India is defined by Section 2(47A) of the Income Tax Act, which meticulously outlines the term Virtual Digital Assets (VDAs). In essence, this definition encompasses a wide array of crypto assets, including cryptocurrencies, NFTs, tokens, and more.
The financial year 2022-2023 brought about significant changes with the introduction of Section 115BBH in the 2022 budget. This section imposes a 30% tax rate (plus applicable surcharges and a 4% cess) on profits arising from cryptocurrency trading conducted on or after April 1, 2022.
This 30% tax rate aligns with India’s highest Income Tax bracket, excluding surcharges and cess. It applies uniformly to private investors, commercial traders, and anyone involved in crypto asset transfers within a given fiscal year. Notably, this tax rate remains consistent irrespective of income nature, be it investment income or business income, and it disregards distinctions between short-term and long-term gains.
However, the tax implications extend beyond this 30% rate. Section 194S introduced another facet of taxation, imposing a 1% Tax Deduction at Source (TDS) on crypto asset transfers occurring on or after July 1, 2022, for transactions surpassing ₹50,000 in a financial year (or ₹10,000 in specific instances). This measure aims to comprehensively monitor all cryptocurrency transactions.
Fast forward to the 2023 Budget, and Indian investors engaged in crypto and NFT trading must categorise their income. If assets are held for investment purposes, they fall under the category of capital gains. Conversely, if assets are held for trading, they are considered business income.
For the Income Tax Return (ITR) in the fiscal year 2022-2023, the ITR forms now incorporate a dedicated section called Schedule – Virtual Digital Assets (VDA) for reporting gains from Crypto and NFTs. The deadline for filing the Income Tax Return for FY 2022-23 is July 31, 2023, with the option to submit a belated return until December 31, 2023.
Determining When the 30% Tax Applies to Crypto in India
The 30% tax becomes applicable when you engage in the following transactions:
- Selling cryptocurrency for Indian Rupees (INR) or another fiat currency.
- Trading one cryptocurrency for another, including stablecoins.
- Making purchases using cryptocurrency for goods and services.
However, the 30% tax does not uniformly apply, as the Income Tax Department (ITD) may sometimes categorise your actions as income receipts. In such instances, you are subject to tax based on your Individual Tax Rate upon receipt. This includes scenarios like:
- Receiving cryptocurrency as a gift
- Earning income through cryptocurrency mining
- Receiving payments in cryptocurrency.
- Earning staking rewards.
- Receiving airdrops.
Understanding the 1% TDS on Crypto Assets
When you transfer a cryptocurrency, a 1% Tax Deduction at Source (TDS) is applied. TDS is a way to collect tax at the source of the transaction. The main reason for this 1% TDS is to track transactions and monitor cryptocurrency investments by Indian investors.
In simpler terms, TDS is a tax collected during crypto transactions. Here are key points to remember:
The 1% TDS started on July 1, 2022.
On Indian cryptocurrency exchanges, the exchange deducts TDS for you.
If you trade on P2P platforms or international exchanges, the buyer must deduct TDS.
Crypto-to-crypto transactions also have a 1% TDS for both the buyer and seller.
If you’re a specified person and your crypto trading doesn’t exceed ₹50,000 in a year, no TDS is needed.
What’s a specified person?
A specified person is an individual or a Hindu Undivided Family (HUF). The ₹50,000 limit drops to ₹10,000 if:
- Your business income is up to ₹1 crore or you had no business income last year.
- Your professional income is up to ₹50 lakhs or you had no professional income last year.
- For Indian exchange users, TDS is managed by the exchange. But for P2P and international trades, specified persons must submit TDS within 30 days using Form 26QE (not available yet on the income tax portal). Others need to get a Tax Deduction Account Number (TAN), file Form 26Q quarterly, and pay TDS by the 7th of the next month.
Lastly, you can reduce your tax when filing by claiming a TDS credit.
Cryptocurrency taxation in India has seen significant developments with clear guidelines and penalties for non-compliance. Investors must understand the implications of the 30% tax on crypto profits, the 1% TDS on transfers, and the new reporting requirements introduced in the 2023 Budget. It’s crucial to categorise income correctly and meet filing deadlines to avoid penalties. As the crypto tax landscape continues to evolve, staying informed and complying with the law is essential for Indian crypto enthusiasts and investors.
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