The Indian cryptocurrency market has boomed recently, with countless Indians investing in Bitcoin, Ethereum, and other digital assets. This popularity surge raises a vital question: how are crypto gains taxed in India?
The Financial Bill of 2022 welcomed new crypto taxation in India. As per the bill, any gains generated from the sale or disposal of cryptocurrency are subject to a 30% flat tax.
This blog post will explore how crypto gains are taxed in India, including calculating taxable income from crypto transactions and real-life examples.
Whether you’re a regular crypto investor or starting your journey in the digital asset space, this blog will provide valuable insights into how crypto profits are taxed in India, empowering you to navigate the complex tax landscape confidently.
Are Crypto Profits Taxed In India?
Yes, crypto profits are taxable in India. As per the Budget of 2022, any gains enjoyed from disposal, i.e., selling, exchanging, or spending cryptocurrency, will be liable to a capital gains tax (CGT). This tax applies to any profit you make, irrespective of how long you’ve held your crypto before selling or using it.
The Indian government placed a flat 30% CGT on any crypto profits, plus a 4% health and education cess. Moreover, the buyer deducts 1% of the tax deducted at source (TDS) from the total sale value.
What Is Considered a Crypto Gain?
In India, crypto gains are profits from any activity involving your crypto holdings. Unlike traditional investments, where different tax rules might apply for short-term and long-term gains, crypto taxes in India follow a flat structure. Here’s a breakdown of what qualifies as crypto gains:
Trading
Buying crypto at a lower price and selling it for a higher price results in a taxable gain. This applies to all your crypto trading activities, regardless of the frequency.
Swapping
In crypto taxes, swapping refers to exchanging one cryptocurrency for another. This action also generates a taxable gain if the value of the new crypto is higher than the original one you swapped.
Spending Crypto
If you use your crypto to purchase goods or services and the value of the crypto at the time of purchase is more significant than what you originally paid for it, that difference is considered a taxable gain.
How To Calculate Your Crypto Gains?
Now that you understand what qualifies as a crypto gain in India and how it is taxed let’s break down how to calculate the taxable gains you’ve generated. The first step to calculating crypto gains is determining your cost basis method.
Cost Basis Method
The cost basis method is a fundamental concept in accounting and taxation used to determine an asset’s original cost for tax purposes. It is crucial in calculating capital gains or losses when assets, including cryptocurrencies, are sold or disposed of. Generally, India recognises two cost-basis methods:
First In, First Out (FIFO)
Under the FIFO method, the acquired cryptos are considered to be sold first when calculating gains or losses. You purchase Bitcoin at different prices on different occasions and then sell some. FIFO would dictate that the Bitcoin sold is considered from the earliest purchase.
Example: You buy 1 BTC at INR 5,00,000 and later buy 0.5 BTC at INR 6,00,000. If you sell 0.75 BTC, FIFO would consider the cost of the 0.75 BTC sold to be based on the price of the first purchase, i.e., INR 5,00,000.
Average Cost Basis Method
The average cost method calculates the cost basis by averaging the purchase prices of all the cryptocurrencies in the portfolio. This method is simple and can help smooth out fluctuations in the cost basis over time. To determine the cost basis, divide the total cost of acquiring all cryptocurrency units by the total number of units owned.
Example: If you purchase 2 BTC at INR 5,00,000 and 1 BTC at INR 6,00,000, the average cost per BTC would be (2 * 5,00,000 + 1 * 6,00,000) / 3 = INR 5,33,333.33.
Applicable Tax Clause
The Financial Bill of 2022 introduced two new tax clauses in the Income Tax Act to determine capital gains tax. Here are details of the appropriate tax clauses on crypto gains:
Section 115BBH
Section 115BBH imposes a flat 30% + cess (currently 4%) tax on any gains from selling crypto or virtual digital assets (VDAs). No deductions can be claimed except for the cost of the token. This rule applies to all individuals and businesses.
Section 194S
As per the 2022 Union Budget, a new law, Section 194S of the Income Tax Act, 1961, has been introduced to regulate virtual digital assets (VDAs) such as cryptocurrencies and NFTs.
This law’s main objective is to promote transparency and tax compliance. Under this section, a 1% tax will be deducted at source (TDS) on the transfer of VDAs if the transaction value exceeds specific thresholds.
Real-Life Scenarios
Let’s understand the capital gains tax calculations process with proper examples:
Scenario 1: Selling Of Cryptocurrency For A Gain
Let’s say Aditya bought a Solana token for INR 10,000 and sold it for INR 12,000.
In this case, Aditya profited INR 2,000 (INR 12,000 – INR 10,000). A flat 30% tax will be applied to this profit; CGT is INR 600.
He must also pay a 4% cess on this CGT, i.e., INR 24. Therefore, his total taxable amount is INR 624.
Moreover, the exchange on which he sold the USDT token will deduct a 1% TDS from the total sale value, INR 120.
Scenario 2: Swapping Of Cryptocurrency
Aditi is a crypto enthusiast with a diverse crypto portfolio. She swaps one BNB token in exchange for Bitcoin Cash (BCH) coins. The acquisition cost of the BNB token was INR 40,000, and the fair market value at which she exchanged the BNB token was INR 50,000.
She enjoyed a profit of INR 10,000 (INR 50,000 – INR 40,000). This capital gain will be taxed at 30% CGT, making the amount taxable to INR 3,000. She will further pay a health and education cess of 4% on this CGT, i.e., INR 120. Her net taxable sum stands at INR 3120.
Please note the buyer will deduct a 1% TDS on the sale value, i.e., INR 50,000. Hence, INR 500 will be paid as a TDS amount.
Scenario 3: Spending Of Cryptocurrency
Ankur received an airdrop of 100 Polygon (MATIC) tokens worth INR 6,000 on 2nd February 2024. On 3rd March 2024, he spent all these tokens buying an online graphical Art. The fair market value (FMV) of MATIC on the date of purchase was INR 10,000.
Hence, in this scenario, Ankur enjoyed a profit of INR 4,000. He will have to pay a CGT of 30% on this profitable amount, which stands at INR 1,200. A 4% health and education cess will apply to this CGT amount, INR 48.
The total tax liability on Ankur becomes INR 1,248. The buyer of the MATIC token will deduct a 1% TDS on the total sale value, i.e., INR 100.
KoinX In Action
We understand that crypto taxes in India can be a burden. Calculating capital gains and individual taxes on each crypto transaction can take ages. Moreover, a single mistake can put you in the category of crypto tax evasion, thereby making you liable to pay hefty penalties.
To solve this issue altogether, we have introduced a platform named KoinX. It helps you to generate and download accurate crypto tax reports within a matter of minutes. Some benefits of using KoinX:
- Accurate Previews Of Crypto Transactions: KoinX uses avant algorithms to provide accurate previews of your capital gains and losses before you trade. It can help you make informed decisions about your cryptocurrency investments.
- Auto-Classification Of Transactions: It automatically categorises your cryptocurrency transactions, so you don’t have to do it manually.
- Detailed Tax Reports: KoinX generates detailed tax reports that you can use to file your taxes. This can save you time and money on your tax preparation.
- Crypto Tax Filing: Buy our bundle crypto filing plan and unlock top crypto tax experts, our experienced tax experts will make crypto tax filing easy and stress free for you.
At KoinX, the default cost basis method is FIFO. If you want to change your cost basis method, you can follow the below procedure:
- Click on your Name, and go to Settings.
2. In settings, select “Tax and Transactions” on the left-hand side of the screen.
3. Under “Calculation Method”, you can change the Cost Basis Method to your preferred choice.
If you want a platform to simplify your crypto tax calculation, KoinX is your answer. Hence, get started with KoinX today.
Conclusion
Navigating the crypto tax landscape in India can be complex, but understanding how to calculate your gains and the applicable tax rates is crucial. This blog series has equipped you with the foundational knowledge to approach crypto taxation confidently. Remember, manual calculation of crypto gains taxes can be hectic.
Therefore, you can use KoinX. A platform that generates accurate crypto tax reports in a matter of minutes.
