India has no regulations regarding cryptocurrencies and non-fungible tokens (NFTs). The Reserve Bank of India (RBI) attempted to ban cryptocurrencies in 2018, but the Supreme Court overturned the attempt.
This means that cryptocurrencies are neither illegal nor strictly legal from a regulatory point of view. On the other hand, NFTs don’t seem to have gotten as much attention from regulators as cryptocurrencies, but their legal status is just as uncertain. However, in 2022, the government released rules on the taxation of cryptocurrency, as detailed below:
Are crypto sales taxed?
Finance Minister Nirmala Sitharaman said changes would happen when she presented the Union Budget 2022 on April 1, 2022. One among them is a tax on cryptocurrencies and other digital assets. She said, “Any income from the sale of a virtual digital asset will be taxed at the rate of 30%.”
Here are some of the salient points of the Union Budget 2022 detailing cryptocurrency taxes:
1. There will be a 30% tax on money from selling digital assets like crypto and NFTs.
2. No deductions will be allowed when reporting income from the sale of digital assets, except for the cost of acquisition.
3. You can’t subtract a loss from digital assets from any other income.
4. The person who gets the digital asset as a gift will have to pay tax.
5. You can’t use income from one digital currency to compensate for losses from another digital currency. (Example: profits made in bitcoin cannot be set off against a loss made in Ethereum or any other coin)
How to determine if you owe crypto taxes?
For starters, a uniform 30% rate will be applied to all crypto gains made in a given year. An individual who purchases a cryptocurrency for Rs. 10,000 and then sells it for Rs. 12,000. would have a profit of Rs. 2,000 and would owe taxes of Rs. 600 (30% of Rs. 2,000 = Rs. 600+cess).
You only owe taxes to the government if you’ve profited from a crypto sale. Suppose you’ve purchased Bitcoin at Rs.2000, and its price today is Rs. 3000; you only owe taxes if you’ve sold the Bitcoin in the market at an Rs.1000 profit. If it is still in your wallet without you having sold it, you don’t owe taxes.
Also, you owe no tax to the government if the net total of your crypto transactions is at a loss for you. You can not even carry forward this loss. You only owe taxes if you’ve gained money from crypto transactions at the end of the financial year.
The government has imposed a TDS of 1% on the proceeds of any cryptocurrency exchange redemptions. Therefore, even if you incur a loss on the trade, TDS will be deducted at the time of sale.
For illustration purposes, let’s say you spent Rs. 40,000 on Bitcoin and then sold it for the same amount, making no profit. You would only get 39,600 back after the deduction of TDS. The TDS deducted will reflect in your Income tax portal and can be adjusted with your Income tax payable.
How to report the sale of crypto on taxes?
Due to a lack of definitive clarity following the Budget session of 2022, contradictory information has been floating around online. So, here are the procedures you need to do to pay your 30% crypto tax and perhaps put your mind at ease. After the current fiscal year ends, the tax will be levied during the following assessment year (2023-24).
- You should start with a clean slate and include all your crypto holdings until April 2022.
- When selling cryptocurrency, be sure to write down the corresponding INR values. You will have to pay the levy in Indian Rupees (INR), not bitcoin or cryptocurrency.
- Income from digital assets must be reported using either Form ITR-1, ITR-2, ITR-3, or ITR-4, depending on the asset’s jurisdiction.
- Institutions and enterprises must submit returns using either Form ITR-5 or Form ITR-6, depending on the circumstances.
How much tax you end up owing on your cryptocurrency depends on the amount you spend or trade, your income level and tax bracket, and how long you’ve held on to your portfolio.
You only have to pay taxes on your cryptocurrency when you make a profit, which happens only when you sell, use, or trade it. Holding cryptocurrency is not something that needs to be taxed.
Do you have to pay taxes on crypto if you reinvest
If you have made a profit from the overall amount you’ve invested, or reinvested, then you are eligible to pay a 30% tax. If you reinvest your cryptocurrency and make a loss, then you would not have to pay taxes. However, 1% TDS applies on all exchange redemptions of cryptocurrency.
Do you have to pay taxes on cryptocurrency gains?
Yes, if you do make gains in the cryptocurrency market, you must pay a 30% tax to the government while paying your taxes.
Do you have to pay taxes on bitcoin if you don’t cash out
No, you don’t need to pay a tax if you haven’t cashed out on your bitcoin or other cryptocurrencies. However, for every exchange, a 1% TDS will be deducted and paid to the government.