Navigating the world of cryptocurrency taxation in India can seem daunting, but understanding the basics is crucial for staying compliant and optimizing your investment strategy. Here's a simplified breakdown of the key aspects of crypto taxation in India
Taxation of Cryptocurrencies (VDAs)
In India, cryptocurrencies are classified as Virtual Digital Assets (VDAs). They are subject to specific taxation rules, which include:
- Taxable Event: Gains from the sale of VDAs are treated as capital gains, similar to other forms of investments.
- Tax Rate: Cryptocurrencies are taxed at a rate of 30% on the gains made from their sale.
- No Deductions Allowed: Unlike other investments, trading fees and other expenses related to crypto transactions cannot be deducted. The only deduction allowed is the cost of acquisition.
TDS on Crypto Transactions
In addition to the 30% tax on gains, India also introduced Tax Deducted at Source (TDS) on cryptocurrency transactions under section 194S. Starting from July 1, 2022, a 1% TDS is applicable on the transfer of cryptocurrencies above ₹10,000 in a financial year.
For example, if you purchase ₹2,00,000 worth of cryptocurrency and sell it for ₹3,00,000, here’s how TDS and taxes apply.
Example of Tax Calculation (with TDS)
Let’s assume:
- You purchased cryptocurrency worth ₹2,00,000.
- You sold it for ₹3,00,000, making a gain of ₹1,00,000.
TDS Calculation:
- 1% TDS on ₹3,00,000 sale value = ₹3,000.
- This ₹3,000 will be deducted at the time of the sale by the crypto exchange or platform, and it will be deposited with the government on your behalf.
Tax on the Gain:
- Your taxable gain = ₹1,00,000 (sale price ₹3,00,000 - purchase price ₹2,00,000).
- Taxable amount = ₹1,00,000 × 30% = ₹30,000 (tax due)
Since ₹3,000 TDS has already been deducted, it will be adjusted against the ₹30,000 tax liability.
- Remaining tax payable = ₹30,000 - ₹3,000 = ₹27,000.
This means you will need to pay ₹27,000 as tax when you file your Income Tax Return (ITR).
Tax on Gifting and Donating Crypto
- Gifting Crypto: If you gift cryptocurrency worth more than ₹50,000, it becomes taxable for the recipient. However, gifts from specified relatives (like parents or children) are exempt from this tax.
- Donating Crypto: Crypto donations are
not tax-deductible in India. But any gains from subsequent sales of the donated crypto will still be taxed.
Handling Crypto Losses
Unlike stocks, crypto losses cannot be offset against gains from other assets. Additionally, crypto losses cannot be carried forward to reduce taxable gains in future years. This is an important consideration for investors looking to balance their portfolios.
Reporting Crypto Income
When filing your Income Tax Return (ITR), make sure to report all cryptocurrency-related gains under Schedule VDA. This section ensures that your tax filing remains transparent and compliant with India's regulations on virtual digital assets.
Key Points
To navigate crypto taxation in India effectively:
- Track your purchase and sale prices carefully.
- Understand the TDS of 1% on transactions above ₹10,000 in a financial year.
- Understand that losses cannot be offset against gains from other assets.
- Ensure that all crypto gains are reported accurately in your ITR under the Schedule VDA section.
- By staying informed and following the tax guidelines, you can manage your crypto investments efficiently and avoid any potential issues.