What will be taxed, how will it be taxed, and everything else you need to keep in mind about crypto taxes in India
- The income from the sale of any virtual digital asset, aka cryptocurrency, NFTs, etc., will be taxed at a flat rate of 30%.
- Deductions will only be allowed for the cost of acquisition of the Virtual Digital Asset.
- No deduction towards other expenses such as transaction fees, etc.
- Losses cannot be carried forward to the next year
- Cryptocurrencies under the pretext of a gift will also be taxable
- If an individual is eligible for Advanced Tax, he is required to pay Crypto Advanced Tax too
Wait, what? Crypto tax too? Like the ambiguity around crypto regulations in India wasn’t enough. Well, it is what it is.
The financial budget made an announcement on Cryptocurrency taxes, amongst other things in 2022. While the regulations are still unclear, there have been some government announcements to help you better understand your assets. (or you could say so)
Mainly because cryptocurrency received some recognition from the Indian government. Whether the government recognizes cryptocurrency as legal or not is a discussion for another day, but given the latest announcements, investors and traders now have to figure out how to calculate their taxes based on their transactions. And everything is included, NFTs even.
2021 saw an influx of new crypto investors, with Bitcoin and Ethereum hitting their all-time highs. Consequently, the markets did move into a bear phase, recking a few traders and hitting plenty of stop losses. With the added tax regulations in 2022, traders now need to be aware of the tax implications on their transactions and how to go about the same. If you’re unsure about how to pay crypto taxes in India, this article is meant for you.
Top 5 things to remember when paying Crypto Taxes in India
While we will be delving into the details of crypto taxes, these are 5 important pointers you need to keep in mind while paying your crypto taxes.
If you’re not investing in crypto, you can just read about these pointers and be the smartest in the room while discussing crypto taxes.
1. Tax at 30%
All cryptocurrency gains would be taxed at a flat rate of 30% no matter the income slab of the individual.
Usually, there are different income sources, and based on the total income of the individual, the person is taxed at different tax rates such as 5%, 10%, 15%, and so on. But for cryptocurrency transactions, the government has laid down a flat rate of 30%.
For example, if an individual buys a coin for INR 5000 and later sells it for INR 8000, the tax would be calculated as
= Transfer Value – Cost of Acquisition
= INR 8000 (Transfer Value) – INR 5000 (Cost of Acquisition)
= INR 3000 (Crypto Gains)
= INR 3000 to be taxed at 30%
= INR 900 (total taxable amount)
Transfer Value is known as the Selling Price, and Cost of Acquisition is known as the Cost Price.
The Cost Price = Cost of asset + Additional fees paid to acquire the asset, such as brokerage cost, exchange cost, etc.
Also, note: Infrastructure cost is not treated under the cost of acquisition
2. TDS Deduction
Since there is no relief provided on tax deducted at source, you need to ensure the TDS deducted on transfers during the year are recorded accurately to compute the tax payable.
Don’t know what TDS is? Here’s our short explainer
Tax Deducted at Source was introduced with the idea of collecting tax from the very source of income. For instance, if an individual (deductor) is liable to make a payment to another party (deductee), the individual will deduct the tax at the source and remit the amount into the account of the Central Government.
For example, Priya, a freelance graphic designer, invoices a bill of INR 50,000 to Stellar Co. Stellar Co. will deduct the required TDS, in this case, 10%, i.e., INR 5000, remit that amount to the Central Government and credit Priya’s account with INR 45,000.
In the Crypto world, the exchange needs to deduct 1% TDS on behalf of the buyer and deposit the same into the account of the Central Government.
Once you file for your taxes, you can adjust the TDS paid.
To know more about TDS, click here.
With the current crypto rules in place, 1% tax is charged on all transactions under the TDS head. To ensure you file for these accurately, keep a log of all your transactions.
3. Advanced Tax applicable for crypto transactions
Rules that are related to the Advanced Tax in the Income Tax Act are the same rules that would be applicable to crypto transactions too. That is, if a person is eligible for advanced tax under their income tax, they are liable to pay the same under their crypto transactions.
But what is Advanced Tax?
Income tax returns are to be filed at the end of a financial year. However, if the total liability for the year is anticipated to be more than INR 10,000, the taxpayer is required to file for Advanced Tax. The Advanced Tax deposits are to be made in various installments and can be set off against the final tax liability that needs to be paid. This is known as Advanced Tax. To know more about Advanced Tax, read here.
Moving on to the crypto world, the same rules apply here too.
4. Choose your Source of Income
Income from Business or Profession
Income from Capital Gains
Income from Other Sources
Yes. You can choose the source of income for your crypto transactions!
Based on your tax assessment, it is best to choose an income tax head that suits your profile the best. Don’t know which income tax you should tax your crypto gains under? Check out our income tax assessment here.
5. No set-off for losses
One of the biggest setbacks of the new crypto regulations is not being able to set off your previous year’s losses with your current year’s gains.
For example, in the financial year 2021, you made an overall loss of INR 10,000 on your crypto transactions. In the financial year 2022, you made an overall gain of INR 13,000.
In other assets such as equity, you could set off the INR 10,000 loss against the gain of INR 13,000 and pay taxes on the overall gain of INR 3,000.
However, this set-off is not available for crypto transactions.
win-win loss-loss situation.
This may seem like a load of information to soak in. And understandably so. Which is why at Binocs, we help you take the load off your taxes, in just a few clicks. Link your wallet, exchange, NFTs and smart contracts on our website and let our software calculate your taxes for you- https://binocs.co/
1. What is the tax % rate for crypto gains?
All crypto gains are charged at a 30% tax rate.
2. What deductions are allowed while calculating the tax on crypto gains?
The only deduction allowed in crypto transactions is the ‘cost of acquisition’. Cost of acquisition is the cost paid to acquire the asset and other expenses such as brokerage cost, exchange cost, etc. No other expenses are allowed to be included in the deductions.
3. If I receive crypto as a gift, is it taxable?
Yes. Akin equity and other assets, which are not taxed under the pretext of gift, cryptocurrencies, and other digital assets given as a gift, are taxed by the receiver of them.
The limit is INR 50,000. Any virtual digital assets exceeding the cost of INR 50,000 will be taxed. However, gifts that are received from siblings or parents are not taxable. Lastly, gifts received by the bride and the groom on the occasion of marriage are not taxable either. And yes, virtual digital currencies are included in this.
4. Are you allowed to set off your previous year’s losses against future year gains?
No. One of the regulations mentioned in the annual budget 2022 mentions that no set-offs against crypto losses are allowed against future gains.
5. How difficult is it to file for crypto taxes in India?
Well, it can be confusing at times. Given the different rules that need to be kept in mind. But with the help of Binocs, you can calculate your crypto taxes easily. Whether it’s cryptocurrencies, NFTs, or other virtual digital assets, Binocs can aggregate all your different transactions under one roof. Apart from that, you can easily download your reports and communicate with your tax consultant for your crypto taxes.