The Indian crypto landscape is buzzing with activity, staking being one of the hottest trends. But amidst the excitement, a crucial question looms: are crypto staking rewards taxable in India? The answer, like much in the crypto world, is more complex.
Hence, buckle up as we delve into the complicated world of Indian crypto taxation and unlock the secrets of staking’s tax implications. We’ll explore the current regulations, expert interpretations, and potential future developments to give you the knowledge you need to navigate this dynamic terrain.
So, whether you’re a seasoned staker or a curious newcomer, join us on this journey to demystify the taxability of crypto staking in India!
What Is Crypto Staking?
Imagine you have a bunch of coins sitting in your piggy bank, just collecting dust. Crypto staking is like putting those coins to work! In crypto, you have a “wallet” where you store digital coins instead of a piggy bank.
Staking lets you lock up some of those coins for some time to help secure a blockchain network. Think of it as lending your coins to the network for a while.
In return for your help, you earn rewards! These rewards come in the form of more of the same coins you staked. It’s like getting interest on your money, but instead of a bank, it’s a cool new blockchain technology.
So, why would you want to do this? It’s a way to earn some extra crypto without actively trading it. Plus, by staking your coins, you’re contributing to the security and smooth operation of the network. It’s a win-win!
How Do You Calculate Your Staking Income?
Staking your crypto is like putting your coins to work, earning passive rewards while they secure the network. But how much can you earn? Cracking that code requires some calculations, but fear not, we’ll break it down!
Know Your Coins
Different cryptos offer different staking rewards, measured as an Annual Percentage Yield (APY). Research your chosen coin’s APY, often displayed on staking platforms or websites like Staking Rewards.
Stake Your Amount
The more you stake, the more potential rewards you accrue. Input your exact amount of staked coins.
Factor In Time
Staking rewards often accumulate over time. Decide your staking period (days, months, years) for a more accurate picture.
Consider Compounding (Optional)
Like magic, compounding re-invests your earned rewards, boosting your overall gains. Check if your platform offers auto-compounding or factor it in manually.
How Is Crypto Staking Taxed In India?
Are you confused? Do you need help with the tax implications of staking your crypto in India? Don’t worry; we’ve got you covered! Here’s how you need to pay taxes on crypto staking in India:
Income Tax
You must pay taxes on the staking rewards to stake cryptocurrency in India. Crypto staking is taxed as income on the fair market value of the staking rewards in INR on the day you receipt. This means that you will need to pay income tax on the value of the tokens you receive when you stake your crypto, even if you do not sell them.
Capital Gains Tax
In addition to the income tax on the staking rewards, you will also be liable for a 30% tax + 4% cess on any profit you make when you sell, swap, or spend your staking rewards. This is because cryptocurrencies are considered assets in India, and any gains from selling or disposing of assets are subject to capital gains tax. Moreover, you are also liable to pay a TDS of 1% on the selling price of the cryptocurrency.
Applicable Clauses
The Department of Finance, India, introduced crypto taxation in the Finance Budget 2022. Each transaction was given a different taxation rule. Hence, here’s a list of applicable tax clauses applied to crypto staking income.
Central Board of Direct Taxes - Rule 11UA
This provision stipulates that if the price paid for newly issued cryptos surpasses their Fair Market Value (FMV), it will be subject to income tax categorised under ‘Income from other sources’. Rule 11UA outlines the method for determining the FMV of these cryptos.
Section 115BBH
Section 115BBH taxes any profit from selling crypto or virtual digital assets (VDAs) at a flat 30% + cess (currently 4%). You cannot claim any deductions apart from the token’s cost. This applies to all individuals & businesses.
Section 194S
Introduced in the 2022 Union Budget, Section 194S of the Income Tax Act, 1961, aims to bring transparency and tax compliance to virtual digital assets (VDAs), including cryptocurrencies and NFTs. This section mandates a 1% tax deducted at source (TDS) on transferring VDAs, applicable when the transaction value exceeds specific thresholds.
How To Calculate Crypto Staking Taxes?
Crypto staking offers an enticing way to earn passive income on your holdings. But with great rewards comes tax responsibility, and navigating the world of crypto taxes can feel daunting. But don’t be afraid. Here, you will learn how to calculate crypto staking taxes in India.
Calculate Your Income From Rewards
The first step in calculating crypto taxes is determining the fair market value of the rewards earned through staking.
Let’s say you have staked 1 ETH on a platform for which you have received 0.1 ETH as a staking reward. The value of the 0.1 ETH at the time of receipt was INR 20,000. This amount will be summed on your regular taxable income and taxed as per the regular tax slab rate.
Calculating Your Capital Gains Tax
Now, if you decide to sell the staking reward of 0.1 ETH after a year, whose FMV is INR 40,000, you will enjoy a profit of INR 20,000.
Capital Gains = FMV at the time of Selling – FMV at receipt.
Capital Gains = 40,000 – 20,000 = INR 20,000
You must pay a 30% flat tax on this INR 20,000. Hence, the CGT stands at INR 6,000. Moreover, you must pay a 4% health and education cess on this CGT.
Additionally, 1% TDS also applies to the sale value of the token.
Example:
Let’s assume Simran owns 1000 Polkadot (DOT) tokens, and she takes all of it on a staking platform. As a staking reward, she earns 100 DOT tokens every year.
The FMV of these 100 DOTs on the day of receipt will be summed up and treated as Simran’s other income.
Let’s assume the value of 1 DOT token is INR 50. Then, she earned INR 5,000 (50 * 100) as a staking reward. This amount will be considered as “Income from Other Sources” and will be added to her ITR.
Now, after six months, she has decided to sell these 100 DOTs at a selling value of INR 70 DOTs each. The total selling value becomes INR 7,000 (70 * 100). She needs to pay a TDS of 1% on this selling value.
As she enjoys a capital gain of INR 2000 on this transaction (INR 7,000 – INR 5,000), she will be liable to pay CGT at a flat rate of 30%. In this case, her CGT becomes INR 600 (30% of INR 2000).
In addition to this, she also has to pay a cess of 4% on the profitable amount.
KoinX In Action
We know that manually calculating such taxes can be daunting; this is where KoinX comes into the picture. It is an automated tax report-generating platform that helps you have accurate tax reports based on your transaction type and jurisdiction. Apart from these, KoinX also offers the following benefits to its users:
Accurate Preview
KoinX offers an accurate preview of your capital gains so that you can decide when to sell the tokens. This can help you make informed investment decisions and avoid unexpected tax liabilities.
Auto-Classification Of Transactions
The platform automatically classifies your crypto transactions based on the type of transaction. It helps you determine proper taxes, as different crypto transactions attract different taxes. Moreover, this can save you time and effort, especially if you have a plethora of transactions.
Reliable Tax Reports
With the help of classifications, KoinX generates accurate and reliable tax reports for its users. You can use these reports to file your crypto taxes easily.
Advance Assistance
KoinX offers advanced assistance from crypto tax experts. This can be helpful if you have complex tax needs. You can hire CAs to help you file your ITRs and GST returns.
Conclusion
So, the answer is clear: crypto staking rewards are taxable in India under the current regulations. Whether seen as income from another source or capital gains, you’re responsible for reporting and paying taxes at the applicable rates. While the framework evolves, staying informed and compliant is crucial to avoid penalties.
Remember, navigating crypto taxes can get complex, especially with staking rewards. Don’t go it alone! KoinX offers a comprehensive suite of crypto tax tools and services to help you stay compliant and maximise your returns.
