The Ultimate Crypto Tax Guide For India - 2023

Indian crypto management space remains muddled enough, courtesy of unclear tax guidelines. Even though the Indian government has laid out a structure to levy tax on crypto in India, the implementation hasn’t moved forth swimmingly.

Today, throughout this detailed crypto tax guide, we aim to change that. It is worth noting that the interpretation of crypto tax in India is more than the 30% slab or the 1% TDS. While these are the pillar guidelines, the tax’o’sphere ranges further — ranging across airdrops, crypto salaries, DeFi yields, mining benefits, staking rewards, and more.

This guide aims to clear out every doubt you have or will have regarding the tax on cryptocurrency relevant to the Indian contingent. 

Before we delve deeper into the existing tax obligations, let us skim through the most recent development. The Union Budget 2023 came out on 1 February 2023. And here are some of the insights that surfaced in relation to the crypto tax in India:

• During the budget session, there were no direct mentions of Virtual Digital Assets, including crypto, CBDC, or even Blockchain tech. 
• Retailers (buyers) using P2P exchanges are responsible for deducting the TDS. Failure to do so can lead to a 100% fine followed by the pending TDS liability and chances of a prison sentence

The biggest change post-Budget 2023 is here.

If you are a taxpayer, the next few lines are going to be extremely relevant to you. 

The revised versions of ITR forms, meant for the upcoming assessment year 2023-2024, are already here. Central Board of Direct Taxes (CBDT) released the updated ITR forms from 1 to 6 for 23-24, earlier than when they arrived for the assessment year 22-23.

Even though the ITR forms (1 to 6), ITR-V, and ITR Acknowledgment forms mostly remain the same, there is a little segment for crypto/VDA disclosures. Everywhere except the ITR-1 (Sahaj) form.

Listed as part of the Schedule VDA, this segment allows you to file the income from VDA transfers:

Notice that the table has the acquisition date, transfer (sell) date, nature of income, cost of acquisition (trading fee and gifting norms), consideration received (cost-basis), and the final income that you want to pay the taxes for. 

The addition of this section makes the following things easier for you:

• Declaring profits from transfers;
• Declaring capital gains on crypto via quarterly breakups (30% on this);
• Reporting every crypto transaction (salary, business income, trade, gift, etc.). 

Non-audited accounts need to file the ITR by 31 July 2023.

You can check the updated forms here. 

Here are the 2022 updates that are still relevant post the Union Budget 2023: 

• This means that the existing taxable slab of 30% still holds for any kind of income generated by the transfer of Virtual Digitial Assets (we will explain it going forward).
• Even the implementation of 1% TDS (Tax Deducted at Source) will hold on every sell-side crypto transaction. 

Here is us summarizing the crypto perspective of the Union Budget 2023: every guideline announced in 2022 still holds. 

For more on the 2022 crypto tax updates, read further.

Yes, all the crypto tax laws in India from 2022 still hold. While we already discussed a few, here are some more for your reference:

• The 30% tax slab extends to profits made from NFTs, airdrops, salary reinvestments, and mining reward reinvestments. 
• Only the exchange fee or trading fee can be regarded as the cost of acquisition. 
• Mining setup will be considered as capital expenditure and cannot be used as a deduction.
• Crypto gifts are also taxed at 30%. However, more clarity needs to be there on the nature of the gifts.
• For tax on crypto trading in India, profits generated from a specific trading pair cannot be offset against the loss incurred from any other trading pair.

For instance, if your BTC-INR trading gig made you ₹20,000 in profits, but your DOGE-INR trade resulted in a loss of 15,000, the net profit isn’t ₹5,000. You will need to pay a flat 30% tax on ₹20,000. 

Also, if you have incurred crypto losses in a given financial year, you cannot carry forward the loss statements to the next year.

Here is every possible crypto-specific event that is considered taxable:

• Crypto to fiat conversions
• Crypto-to-crypto conversions or swaps
• Payments made in crypto (includes stablecoins).

Note that crypto generated via business income and earned as salary have separate guidelines corresponding to individual income tax slabs. More on this later. 

Any item that represents value digitally is open to trading, or can work as a mode of payment, is a Virtual Digital Asset VDA. Digital representation of Fiat currencies doesn’t count, which subtly discards CBDCs from the purview of VDA taxation.

Before we discuss the crypto tax landscape in India, let us scan the global crypto stage.

Did you know that Belgium has a 50% tax levying provision in place for professional crypto trading income? Plus, the country has a flat 33%  capital gains tax slab on every crypto transaction. Iceland isn’t placed any better, with yearly crypto gains of over $7000 attracting a flat rate of 46%. 

No more scares. We will stop right there.

You can always check this infographic to locate the tax slabs and obligations provisioned by countries across the globe.

Coming back to India, here are the reasons why the crypto tax laws were put in place:

• To regulate the onshore market;
• To discourage casual investors from carelessly dabbling in, put their finances at risk;
• To keep track of the on-ramp and off-ramp fiat to crypto transactions with TDS helping establish a money trail.

It is noteworthy that VDA/Crypto taxation falls under Section 115BBH.

Here are pointers that we shall discuss throughout this segment:

• Every sell-side transaction in crypto attracts a 1% TDS, to be deducted by the buyer/exchange.
• If any crypto-crypto or crypto-fiat transfer results in a profit, you need to pay a flat 30% tax on the same.
• It doesn’t matter if you are making a profit or incurring a loss; selling your crypto on an exchange will see a 1% TDS deduction.
• The 1% TDS deduction will not include the exchange fee.
• While filing your taxes using the ITR forms, you need to pay a surcharge per your income slab and a fixed cess on top of the 30% obligation. 
• Income from salary in crypto will only be charged at 30% if you hold the same and it appreciates from its cost-basis value at acquisition or receipt.
• Crypto mining rewards can be considered business income if you have an official business infra in place. However, holding and reinvesting mined tokens will attract at 30% tax.
• The government might be planning a 28% GST implementation on the buy-side transactions for business setup.

India has a flat 30% crypto tax slab in place, regardless of short-term or long-term holdings. It is simple to understand and even simpler to calculate.

If you have purchased crypto worth ₹2,00,000 and are planning to sell the entire block for ₹2,50,000, you will end up paying 30% income tax on ₹2,50,000 - ₹2,00,000 = ₹50,000. That translates into ₹15,000. 

And that’s just the capital gains part. The 1% TDS obligation also exists, under which the seller has to forego 1% of the entire corpus as advance tax. This percentage isn’t related to profits or losses. Instead, TDS is levied on every sell-side transaction to keep track of the money movement.

Let us circle back to the previous example. If you have just sold the entire crypto block for 2,50,000, 1% of the same or ₹2,500 would be automatically dedicated by the exchange (if Indian) and submitted to the government.

But the mentioned 30% tax on crypto and the TDS are meant for standard exchange-specific transactions. Also, like any other asset class-specific tax liability, a 4% cess and applicable surcharge on the capital gains will also be applicable during tax filing. The surcharge can vary between 10%, 15%, 25%, and even 37% — per the total income slab above 50 lakhs.

In India, there are several other ways in which people use and manage crypto. Let us look at how the tax obligations can vary depending on the use case:

Per the Union Budget 2022, every short-term and long-term gain or crypto income will attract a 30% tax. As it falls in the “Capital Gains” category, there is no tax on loss on crypto. But there is a catch! You cannot offset the gains made from one crypto trading pair against the losses made from another. India taxes each crypto independently, period!
 

Good news here! If you receive your salary in crypto, the 30% tax slab isn’t applicable. Instead, your salary will be taxed according to your income tax slab — per the old or new regime.

However, if you are considering holding the earned crypto, this time as a trading or investment instrument, you will need to pay a 30% crypto tax on the generated trading income. 

There are quite a few ways to earn crypto income from the business. You can earn in crypto as a freelancer, whereas even a mining setup corresponds to a business infrastructure with crypto as output. The idea here is first to register your business and then take care of crypto tax obligations.

Earnings in crypto are taxed according to business guidelines. However, GST and GST refunds become important considerations when it comes to buying and selling crypto tokens for managing goods and services.

At present, there are talks about the possible implementation of a 28% GST slab, which crypto-specific businesses might need to pay while setting up rigs or paying for business-running services. GST refunds will therefore be applicable once they file the business income. We expect some more clarity on this, in months to come. 

Businesses also need to declare the fair value assessment of their crypto income while filing taxes. 

Income from other sources includes income as a trading business or as a passive yield farmer. If you run a trading business and generate profits for your clients, you only need to pay taxes as per your business income. DeFi-specific use cases are taxed as income only if you are registered as a business. Anything else, without setup costs or a business tag, will attract a profit-like 30% tax slab.

The 30% tax on crypto in India is transparent enough and clearly laid out. If any crypto activity results in profits, you must pay out 30% of those profits as crypto tax. 

No long-term and short-term holding timeframe would impact the crypto tax in India. Also, we did mention that India taxes each crypto independently, and hence you cannot offset the profit from one pair with any kind of crypto or even non-crypto loss.

The 30% tax on crypto in India is applicable on gifts, NFTs, airdrops, and more.

Even though the 30% crypto tax in India feels a bit overwhelming to some, there is a threshold to consider. Simply put, VDAs with a fair value of under 50,000 need not be considered part of the 30% tax slab. However, as crypto is volatile, any price surge taking the value of the VDAs higher than 50,000 will be the appreciated difference subject to the 30% tax. 

As mentioned earlier, you need to pay 1% TDS on every crypto transaction, profit or loss notwithstanding. Yet, as a crypto trader in India, you need not worry about the deductions, at least the work behind them. Every time users sell their crypto, the exchange turns the buyer and, therefore, has the responsibility of deducting 1% TDS from the cumulative sell value.

It is worth noting that TDS can be reclaimed as a tax refund (if eligible), and its implementation is only a way to establish a money trail concerning crypto transactions. 

Also, the concept of TDS might vary if you are planning to initiate crypto-crypto swaps, are looking to get hold of highly illiquid tokens, or even mulling over a quick P2P trading stint. Here is our detailed TDS explainer to help you through all that: 

The 1% TDS tax on crypto in India is where the confusion arises. For a simple exchange-specific trading activity, you, the buyer, don’t need to pay anything as TDS while acquiring crypto.

Yet, some exchanges might show a 1% TDS breakdown for illiquid crypto assets, even on the buy side. The logic here is simple: To get you that illiquid token, someone onshore or offshore will have to sell the token. The 1% TDS on the buy side is, therefore, on that seller’s behalf.

If you plan on selling an illiquid token, even a 2% (1% + 1%) TDS tax on crypto in India is possible, as that would then involve multiple hops. The exchange overseeing the same will transfer 2% on your behalf. For standard liquid crypto assets like Bitcoin, the TDS is 1%.

For P2P exchanges, it is the responsibility of the buyer to submit 1% TDS on the seller’s behalf to help the government keep track of the crypto money trail. This is meant to keep grey market activities out of the equation. 

TDS tax on crypto serves another purpose. In a market as volatile as crypto, TDS or the advance tax helps determine the fair value of the asset. This comes in handy while filing taxes during the tax season, especially when you have made trades using international exchanges and there is no fixed INR-specific measure to identify the fair value. 

Now that we have some clarity on the 30% tax and 1% TDS crypto tax in India, it is time to take a quick look at the standard tax obligations related to every crypto-specific activity

Here is the entire crypto tax flow keeping the previous considerations in mind:

Once you sell your crypto worth ₹2,00,000 for ₹2,50,000 on an Indian exchange, the exchange deducts 2,500 as TDS (submits it with the government on your behalf) and gives you ₹2,47,500 back. While filing taxes for the given financial year, you still need to submit taxes at 30% of the generated profit or 50,000. The advance tax in this case, or the TDS, can be claimed back if you are eligible for a tax refund.

So the tax submission, in this case, would be: ₹2,500 (TDS) + ₹15,000 (per the tax slab) = ₹17,500

Note: You can claim the TDS part if you are eligible for a refund.

Still unsure as to how the slabs and tax obligations work. Keep reading!

You need to pay a 30% tax on crypto trading in India. However, the tax only needs to be paid on profits. For instance, if you purchase BTC worth ₹5000 on CoinDCX and sell the same when the value of your BTC corpus appreciates to ₹5300, you need to pay a 30% tax on the net profit of ₹300.

The 1% TDS crypto tax in India will be applicable to ₹5300, and CoinDCX will submit ₹53 to the government on your behalf. The TDS sets a money trail and can be claimed later if you are eligible for a refund. 

Miners are better off compared to traders when it comes to navigating the income tax on crypto. Here is why:

If you look at the fine print of the crypto tax law in India, you will see that the 30% tax on crypto is applicable to transfers that generate profits. However, a crypto-specific transfer here means selling, exchanging, or relinquishing an asset. In the case of mining, none of this happens. Hence, the mining rewards are to be taxed as business income.

It is a good practice to register your mining business officially. This way, equipment costs can be used for deductions, as they do qualify as capital expenses. However, if the rewards you have generated by using computing power appreciate sitting in your wallet, you will need to pay taxes on the appreciated value, at 30%.

However, you need to keep track of the date when you receive the rewards, as that would help you locate the fair value and even calculate the subsequent losses and profits.

If you own some crypto and are planning to lock it for staking to generate an annual percentage yield or APY, you need to pay a 30% tax on the APY or the generated profits when you sell the same and convert the crypto to fiat.

Holding the appreciating crypto in a staking pool doesn’t come with any tax-specific obligations. However, if staking is meant to secure the blockchain and there are no capital gains in play, there wouldn’t be any crypto tax obligations in play. 

Any crypto you receive as a gift is taxed at 30% flat, provided you convert the same to fiat. No tax obligations remain if you choose to HODL the same in your centralized or even decentralized wallets. A good practice is when the percent giving the gift deducts 1% of the gift’s value as TDS just to establish a money trail.

NFTs received as gifts and converted to the cost-equivalent fiat are to be taxed at 30%. However, there is no clarity on the tax obligations related to the minted NFTs, as it is very hard to establish the fair value of a non-fungible token. You should note that India taxes crypto NFTs’ income in the same bracket as any other VDA. 

DeFi transactions like yield farming, looping, DEX-specific lending or borrowing, and staking are tax-free till the time they are in the crypto form. The reason is that most yield farming or staking pools are relevant to DEXs that do not require PAN card inclusions and KYC-specific verifications.

However, the moment you convert the same to fiat and opt for a bank transfer of sorts, you need to pay a 30% crypto tax in India. 

Crypto airdrops are like gifts/rewards from NFT marketers or a result of hard forks. Therefore, you need to pay a 30% tax on their sale-specific earnings. However, to make things easier to calculate during the tax season, the value of airdropped tokens at acquisition need to be identified and reported when needed. 

P2P transactions can get tricky. However, on exchanges like Binance, it is the obligation of the buyer to deduct 1% crypto TDS on behalf of the seller, provide a TDS certificate of the same, and submit the same to the government. 

This helps keep track of the money flow and sets a precedent for future filings. Once done, the onus to report crypto taxes is on the seller. 

However, the reason for selling is important here. 

Imagine that a person has received their salary in crypto, say 3000 USDT. They simply want to convert the same to fiat. The equivalent sum will now be taxed per the person's income tax slab if they immediately cash out and don’t hold the USDT to generate income via arbitrage.

If they convert the same to BUSD and then to USDC to generate arbitrage gains on, say, 3000 USDT, the profits will be taxed at 30%. Therefore, keeping a record of the fair value of the crypto received at acquisition is necessary. 

The TDS deducted by the buyer, in this case, can be adjusted with the tax obligations. 

In case the person is making some profit on the tradable value of the mentioned crypto, he or she should report the same during the tax season. The profits, even the P2P ones, fall under the crypto tax laws in India. 

Crypto swaps from one wallet to the other (wallets of different individuals) are only subject to taxation if there is a value appreciation in play. You have zero tax liabilities if you transfer crypto between two of your wallets. But the question remains: is sending crypto to another wallet taxable? The answer is yes, but only if the transfer generates additional income or profits.

No, you need not pay the 30% crypto tax in India if your corpus is in red. However, if you are cashing out, the exchange will deduct 1% TDS even in loss. 

Here are some of the legal strategies that can help you lower your crypto tax burden:

1. Increase exposure in the indirect crypto offering:

The idea here is to look for global investment platforms that offer crypto-linked funds and exposure to the same. This way, it is easier to lower direct crypto tax exposure.

2. Choose to mine over trade

Miners can include mining rewards as business income. This could lower your cryptocurrency tax in India as you might not fall into the 30% slab.

3. HODL

The 30% tax on cryptocurrency in India is only eligible if you plan on cashing out. Even the 1% TDS crypto tax is subject to selling. Therefore, if you choose to be in the crypto world without cashing out in fiat, you can reduce your tax on crypto trading in India.

Crypto is tax-free in India on the following occasions:

1. Crypto wallet transfers

2. Crypto holdings

3. Buying crypto with INR

4. Recieving gifts in form of crypto under Rs. 50k

5. Family/Special occasion gift

To calculate and file crypto taxes in India, all you need is reliable Tax software that can do the heavy lifting for you. Using an efficient tax platform can help you calculate the right amount of tax on crypto trading in India. 

It is advisable to opt for a solution that can track your crypto portfolio in real-time, integrate multi-exchange transactions, and even help you understand the tax breakup without losing your mind.

If you are still a hustler and planning to prepare beforehand for the upcoming crypto tax seasons, here are the things to follow:

• You need to locate every VDA you have owned and sold during the financial year 2022 and 2023. The timeline here starts from 1 April 2022 and goes all the way to 31 March 2023. 
• Identify the cost basis of the VDAs during acquisition. Even if you received your salary in crypto during the financial year, you need to calculate the cost at receipt. 
• For P2P trades, keep a TAN or (Tax Deduction Account Number) handy. This could help you manage the P2P tax obligations better. 
• For profits on specific VDAs, you need to file the returns using the ITR forms 1, 2, 3, or even 4.
• If you are a business or an institution, ITR forms 5 or 6 might make more sense to you.

Note: The new ITR forms for AY 23-24 are already here. Here are the details.

And yes, if you want to ditch all the manual hustle, there is yet another way out.

You can hop onto the Binocs bandwagon to get your crypto taxes sorted. Simply pair your wallets (Cold, Hot, or Exchange) and let the software handle things for you — accurately and efficiently. 

Here is a short video that shows how to do your crypto taxes with Binocs:

Crypto tax laws in India might be the first step on the path toward regulation. Tax on crypto might feel high and overwhelming, but we consider it a good start. And even though we have mentioned it earliest, you only need to pay tax on crypto — if you are looking to sell. If you plan on holding crypto like BTC, you need not worry about the tax on bitcoin in India. 

Therefore, HODLing is still the best way forward. And if you are eligible for the 30% tax on crypto, having dependable tax software by your side is the right move to make.