India is still adjusting to the slabs and laws revolving around Crypto taxation. Yet the budget announcement of 2022 sparked a series of questions like, “Which of my assets are taxable? How much tax do I pay? Do I pay taxes on losses as well?” among regular crypto investors.
Right now, it’s certain that any tax resident of India that makes money in crypto (via trading, mining, or airdrops) needs to declare their assets and pay a tax under the bill.
This post will explain all the taxation terminologies related to tax on Crypto Gains in India and give you a comprehensive perspective on the tax compliances you’re supposed to adhere to.
What is Considered a Crypto Gain?
A crypto gain accounts for the profit that a cryptocurrency attracts for an investor.
This includes:
- Capital gains
- Use of crypto to buy goods and services
- Exchange of crypto assets
If you buy Ethereum worth $2000 in Dec 2022 and sell it for $2500 in Feb 2023, you have a profit of $500 which is subject to tax. This profit is treated as Capital gains under Crypto/VDA assets (introduced in 2022) in India and taxed as a separate category of income.
How to Calculate your Crypto Gains?
Calculating crypto gains requires determining your cost basis – the original cost of the crypto is the purchase price. You also need to know the sale price of the crypto.
For example, if you bought one Ethereum for $2500 and sold it for $3500, your gain would be $1000.
Applicable tax clause
The introduction of Section 115BBH in the 2022 budget levies a 30% tax on profits made by trading cryptocurrencies from April 01, 2022. The 194S section also levies a 1% Tax at Source on the transfer of crypto assets from July 01, 2022, if the transactions exceed ₹50,000 (even ₹10,000 in some cases) in the same FY.
This tax rate applies to private investors, commercial traders as well as anybody that transfers digital assets in a particular financial year. This tax rate also applies irrespective of the nature of income for the investor and doesn’t recognize any difference between short-term or long-term gains.
Real-life Scenario(s) Of Tax Computation On Crypto Gains
Scenario #1 – On an investment of ₹10,00,000 an income gain of ₹1,00,000 that was made at the start of FY22, a flat 30% cryptocurrency tax is applicable. This means ₹11,00,000 was received from the sale of the crypto at the end of FY22 and you will be required to pay ₹30,000 on your crypto revenue for that fiscal year (plus cess and surcharge).
Scenario #2 – Say you bought Bitcoin for about $4000 in 2019. Fast forward to 2022, the same Bitcoin was worth $35,000. The price and utility of Bitcoin have always been volatile.
Check out the price prediction of Bitcoin till 2030.
In this case, both you (the seller) and the buyer have tax implications.
- The buyer will need to deduct TDS at 1% of the value and report the transaction in Form 26Q or Form 26QE, as applicable, at the time of the transaction.
- You, as the seller needs to report the transaction as a capital gain since you cashed out your investment. The gains will be taxed at 30%.
This gain = price you paid for the Bitcoin – its value at the time of the transaction.
Scenario #3 – Suppose you invest $10,000 in cryptos and get 1000 tokens. Then you sell them in 2 installments of 500 units each and receive $6500 and $7000 respectively. This means your investment of $10,000 made you $13,500 in total and now you are liable to pay a 30% tax on a net income of $3500. This will be taxed at 30% (plus surcharge and cess) under the head Capital gains
Some Ambiguities About Tax On Crypto Gains
There are a few areas that can be unclear when it comes to taxes on cryptocurrency gains:
- Tax experts don’t find much clarity when it comes to how different types of crypto transactions could be treated.
- ITR forms now have three sections for income from VDAs – capital gains, business income, and other income. Which transaction should be classified under which category needs more clarity.
Ways To Reduce Tax On Crypto Gains
Get indirect exposure to crypto – Recently launched portfolios like Digital Currency Group allow you to get exposure to certain digital assets without directly investing in them. As a result, this kind of indirect exposure can reduce your tax liabilities.
KoinX is an effective taxation tool that could help you understand all your crypto-related compliances. Not only is it a really efficient tool but it also gives you a comprehensive outlook of your crypto portfolio – even including your penny transactions. Start calculating your crypto taxes with KoinX.
