Ultimate Guide to Crypto Taxation in India 2024

In April 2022, the Indian Government laid down a stance on crypto taxation. This was the first time when cryptocurrency was discussed under the law. The Central Board of Direct Taxes proposed a new tax regime in favor of income or gains arising from transfer of  “Virtual Digital Assets'' inter-alia NFT’s or any information, code, number or token generated through cryptographic means.

Even after 2 years of this proposed taxation rule a lot of crypto investors are seeking the answers to: How, When and On What conditions a 30% crypto tax is payable in India? Our blog is here to rescue you from the prevailing confusion surrounding Crypto TDS and Crypto Taxation Framework in India.

This comprehensive post is a detailed how-to on Crypto Taxation in India for 2024 providing you with the clear understanding of the Crypto Tax Regime in the simplest manner.

Crypto Taxation in India

Key Points to Note from the Proposed Crypto Taxation Framework

1. Any income generated from the transfer of Virtual Digital assets is 30% Taxable and is effective from 1 April 2022.

2. No deduction is permitted in regards with any expenditure, except the cost of acquisition of the VDAs.

3. The loss incurred cannot be set off against any income and even cannot be carried forward.

4. Person who receives a VDA in the form of Gift is liable to pay 30% tax regardless of the amount.

In July 2022, the Government imposed 1% TDS to be paid at the time of payment to any resident as consideration of Transfer of VDAs.

Understanding 30% Crypto Taxation in India

According to the rules set forth by the Indian Government under the section 115BBH, of Income Tax Act, 1961, all gains arising from the transfer of Virtual Digital Assets (VDAs) are taxed at a flat rate of 30% and does not allow offset against losses realized in any other transactions or assets.

To elaborate it further; any profits incurred by crypto investors from dealing in cryptocurrencies are liable to 30% taxation. This is also applicable to activities like mining, staking and receiving crypto as a gift from another person.

When reporting or filing crypto taxation (reporting income from transfer of virtual digital assets) no deductions can be claimed except the cost of acquisition However, it does not include the acquisition cost incurred on mining infrastructure of cryptocurrencies.

Let’s understand the calculation of 30% crypto tax in India through various cases:

CASE 1:

Suppose you invest INR 1,00, 000 in BTC (any cryptocurrency) and sell it for INR 70,000, making a loss of INR 30,000

Selling price - Buying price = Total profit/loss.

70,000 - 1,00,000 = -30000 (loss)

Now, again you invest INR 1,00,000 in ETH (any cryptocurrency) and sell it for INR 1,30,000, making a profit of 30,000.

1,30,000 - 1,00,00= 30, 000 (Profit)

As per the above calculations your net profit will be -30,000 + 30000 = 0; but still, you will have to pay 30% tax on the 30000 profit you have made on ETH which is 9000 because as per the aforementioned law you can not set off losses against profit.

CASE 2:

Let’s Consider that you make a purchase of INR 1,00,000 BTC (any cryptocurrency) and sell it for INR 1,30,000. Clearly, you make a gain of INR 30,000 on your investment.

Here, you will have to pay 30% tax on your gain, i.e. 30% of INR 30,000 = INR 9000.

CASE 3:

The most interesting case is that if you invest BTC (any cryptocurrency) worth INR 1,00,000 in the fiscal year 2022-2023 and you never sell it, you don't have to pay any tax until you sell. That is you can avoid tax on cryptocurrencies by simply holding them.

Understanding 1% TDS on Crypto in India

In addition to 30% tax levied on Virtual Digital Assets and cryptocurrencies, the Indian government has also mandated a deduction of 1% TDS on transfer of crypto and other virtual digital assets under the section 194S of the Income Tax act, 1961.

1% TDS on crypto is an advance tax that provides an overview of the investors’ activities in the crypto market and can be set off/claimed against the crypto Tax while Filing the Income Tax Returns.

In the case of crypto, all the sales amounting above INR 10,000 in a financial year, are subject to 1% TDS. This means that if the total of a user's transaction value exceeds INR 10,000 in a year, all the sell transactions will incur 1%TDS regardless of whether they result in profit or loss.

For users using Indian cryptocurrency exchanges, this 1% TDS will be calculated and deducted at the time of selling VDAs on the exchange and will be filed to your respective PAN card details. The users can further claim it at the time of filing ITRs. Individuals using foreign exchanges must manually deduct and file TDS and may seek assistance of tax experts for this process.

Here is a detailed guide to 1% TDS on Crypto

In the following cases 1% TDS will be deductible:

Crypto to INR sell transactions: TDS is applicable on selling crypto in INR regardless of profit or loss.

Crypto-Crypto transactions: 1% TDS is applicable on both Buying and selling of crypto for crypto.

Tax Implications of Crypto Activities in India

Tax on Crypto Mining

Crypto mining is not taxable in India under the VDA law, However, the income generated from selling the mined cryptocurrency is taxable. This income, generated from selling the earned crypto coins must be treated and filed under the business income.

For instance: You mined 3 Bitcoins in FY 22-23 and decided to sell these Bitcoins in FY 23-24. The value realized from selling these Bitcoins will incur a tax of 30% when filing the ITR.

Tax on Crypto Gifts

Any gift received in the form of Crypto is subject to flat 30% taxation. The receiver of the gift must pay a 30% tax on the value of gift received irrespective of whether the gift is converted to INR.

For instance: Person X gives 100 Doge worth INR 10,000 to person Y. Y would be responsible to pay 30% tax on the value of the gift.

Tax on Crypto Staking

Crypto staking is not subject to 1%TDS, However, income generated from it is subject to 30% Tax rate. When selling the cryptocurrency earned through staking, 30% tax must be paid on the realized value.

For instance: A person staked 120 MATIC and received 12 MATIC (as a 10% interest) and sold this staking reward at the rate of INR 100/MATIC. They would be liable to pay 30% tax on the realised value of  INR 1200.

FAQs on Crypto Taxation in India

1. Is cryptocurrency legal in India?

Although the government has not made any statement regarding its legalization, it has categorized it under asset class while imposing a 30% tax, so holding it as an asset becomes legal.

2. When do I have to start paying 30% tax on crypto?

30% Tax will be calculated on all the cryptocurrency transactions from the start of the new fiscal year, i.e. 1 April 2022. The calculation of tax on crypto gains till 31st march 2021 will remain as per your tax slab.

3. When will I have to pay tax on Cryptocurrencies in India?

Any income arising from the sale of virtual digital assets is subject to a 30% tax in India.

4. Will I have to pay tax on buying crypto in India?

Acquiring cryptocurrencies does not involve a 30% tax. You can buy and HOLD crypto to avoid crypto tax in India.

5. Do NFTs also fall under taxation?

Yes, NFTs have been considered virtual digital assets, and income generated from NFTs will also be taxed at 30%.

6. Can I adjust my crypto gains under the tax slab?

No, you cannot adjust your crypto gains. E.g. If your income is INR 2,00,000 p.a. and you have made a profit of INR 3,00,000 on crypto investment, you can not adjust it under your tax slab. You will have to pay 30% on INR 3,00,000 only.

7. Do I have to pay tax while transferring crypto to other exchanges or wallets?

There is no tax on transferring funds from one wallet or address to another until you sell it.

8. Is there any Tax on crypto mining?

No, crypto mining is not taxable in India under VDA law. But, the income generated from token value must be filed under business income.

9. Is there any Tax on crypto Staking?

Yes, a 30% Tax is applicable on the value of crypto earned as interest on staking cryptocurrencies.

10. What will happen to my deducted crypto TDS if my tax amount is less?

You can claim your remaining TDS back at the time of income TAX filing if the amount of tax paid is less than the amount of TDS deposited.

11. What will happen to my TDS if my tax amount exceeds TDS?

Your TDS will be set off against the taxation amount, and you will have to pay the remaining tax amount only.

For instance, if your filed TDS amount is 5000 and the crypto tax amount you have to pay is 8000, your taxation will be set off against the paid TDS, and you will only have to pay 3000 extra as tax.

12. Do I have to pay tax if I have not withdrawn my profit to my bank account from the exchange or wallet?

Yes, Once you sell your crypto, you become liable to pay tax irrespective of the location of your funds.