The world of cryptocurrency is evolving at breakneck speed, and so are the regulations surrounding it. For Indian residents, taxation on cryptocurrency salaries is a hot topic that sparks confusion. Whether you’re a freelancer receiving Bitcoin payments or a remote worker earning in altcoins, understanding your tax obligations is crucial.
This blog is your one-stop guide to navigating the complex landscape of crypto salary taxes in India. We’ll unravel the latest regulations, answer your burning questions, and equip you with the knowledge to file your returns confidently.
What Are Crypto Salaries?
Crypto salaries refer to wages or payments individuals receive in cryptocurrency rather than traditional fiat currency like dollars or euros. Instead of being paid in cash or through a bank transfer, employees receive compensation in digital currencies such as Bitcoin, Ethereum, or other cryptocurrencies.
Moreover, this payment method is gaining popularity in various industries and companies operating digitally. Instead of receiving physical money or funds in a bank account, workers receive their earnings in a digital format stored on a blockchain, which is a decentralised and secure network.
Additionally, crypto salaries can offer benefits such as faster transactions, lower fees, and the potential for increased value over time. But they also come with risks like price volatility and tax regulations.
How Are Crypto Salaries Taxed in India?
The answer is simple: crypto salaries are taxed like any other salary received in INR.
You must pay income tax on the FMV of the cryptocurrency you receive as a salary. Additionally, you will be liable to pay a 30% (4% cess) capital gains tax (CGT) when you sell, swap, or spend your crypto salary.
Here’s a more proper breakdown for you:
Income Tax On Cryptocurrency Salaries
Suppose you receive wages in terms of cryptocurrency. In that case, the market value of the total cryptocurrency you received in Indian Rupees (INR) on the day of receipt will be taxed under the income tax salary slab. The tax rate depends on which salary slab you fall on the income tax salary bracket.
So, since you are receiving the crypto salary, it gets deposited into your portfolio, which you can transfer to your bank. Whether you transfer or use it in P2P transactions, it’s still taxable in India.
Capital Gains Tax On Transfer Of Cryptocurrency Salaries
You aren’t liable for the crypto CGT bracket in India unless you satisfy the crypto “transfer” term mentioned in Section 115 BBH. As per that, the transfer of crypto can be any of these three mediums:
- Selling of acquired cryptocurrency
- Exchanging the acquired cryptocurrency for another cryptocurrency
- Relinquishment of the acquired cryptocurrency.
Suppose you convert the cryptocurrencies you received as salaries to INR or use them to buy goods or services. In that case, this transaction will be classified as a disposal and subjected to a flat tax rate of 30%. Moreover, you must pay a cess of 4% on the taxable amount. Moreover, a 1% TDS is deducted by the buyer on the selling price of the cryptocurrency.
Applicable Tax Clauses
Here are the applicable tax clauses that come into play when drawing salaries in cryptocurrency:
Section 4 Of The Income Tax Act:
Section 4 of the Income Tax Act 1961 discusses how income tax is applied to taxpayers’ total incomes. It explains what kinds of income are subject to taxation. This includes income from salary, business, capital gains, and others. Certain exemptions and deductions apply, but all income sources are generally taxed under this section.
Section 17 Of The Income Tax Act
Section 17 of the Income Tax Act, 1961 is the cornerstone for understanding how your salary is taxed in India. It primarily deals with defining “salary” and outlining the various components that fall under its umbrella. Let’s break it down:
What is “Salary” under the Income Tax Act?
As per Section 17(1), “salary” encompasses any payment received by an employee from their employer, be it in cash, kind, or as a facility. This includes:
Basic salary: Your fixed monthly pay.
Allowances: House rent allowance, transport allowance, etc.
Bonuses and commissions: Performance-based incentives.
Perquisites: Benefits like a car, club memberships, etc.
Profits instead of salary: Payments, such as bonuses or commissions, are received instead of salary.
Section 115BBH Of The Income Tax Act
Under Section 115BBH, any profit you make from selling your crypto is taxed at a flat rate of 30%. This applies to short-term and long-term gains, meaning there’s no special treatment for holding your crypto for extended periods. Apart from the 30% income tax, you must also pay a 4% health and education cess on your crypto gains.
Section 194S Of The Income Tax Act
Whenever you sell or trade your crypto for more than a certain amount, the platform facilitating the transaction must deduct 1% of the sale value as TDS. This threshold is:
- INR 50,000 annually for individuals and Hindu Undivided Families (HUFs) with specific income levels.
- INR 10,000 per year for all other individuals and HUFs.
Income Tax Slabs In India
Here’s the new tax slab presented in the budget for 2024 for taxpayers:
Income Tax Slab For Citizens Aged Below 60 Years
Tax Slab | Rates |
Up to Rs. 3,00,000 | NIL |
Rs. 300,000 to Rs. 6,00,000 | 5% on income which exceeds Rs 3,00,000 |
Rs. 6,00,000 to Rs. 900,000 | Rs 15,000 + 10% on income more than Rs 6,00,000 |
Rs. 9,00,000 to Rs. 12,00,000 | Rs 45,000 + 15% on income more than Rs 9,00,000 |
Rs. 12,00,000 to Rs. 1500,000 | Rs 90,000 + 20% on income more than Rs 12,00,000 |
Above Rs. 15,00,000 | Rs 150,000 + 30% on income more than Rs 15,00,000 |
Income Tax Slab For Citizens Aged Between 60 To 80 Years
Tax Slabs | Rates |
Rs. 2.5 lakhs | NIL |
Rs. 2.5 lakhs – Rs. 3 lakhs | NIL |
Rs. 3 lakhs – Rs. 5 lakhs | 5.00% |
Rs. 5 lakhs – Rs. 10 lakhs | 20.00% |
Rs. 10 lakhs and more | 30.00% |
Income Tax Slab For Citizens Aged Above 80 Years
Tax Slabs | Rates |
Rs. 0 – Rs. 5 lakhs | NIL |
Rs. 5 lakhs – Rs. 10 lakhs | 20.00% |
Above Rs. 10 lakhs | 30.00% |
How Do You Calculate Taxes On Crypto Salaries?
Now comes the question of how you can calculate these taxes. Let’s present you with the calculations in a simplified manner:
Income Tax Calculation
To compute the amount of income tax you need to pay on your crypto salary, you need to do the following things:
- Step 1: Check The Number Of Crypto You Received As Salary: The first step is to check the quantity of cryptocurrency you have received as a salary.
- Step 2: Determine The Fair Market Value Of That Crypto On The Day Of Receipt: The second step is to check for the FMV of the crypto token in INR you received as salary on the day of receipt.
- Step 3: Calculate Your Income: Once you have the token’s quantity and price, multiply both, and you will get your total taxable income. You can use this amount to see which salary slab you are falling on to calculate your net taxable amount.
Capital Gains Tax Calculation
If you decide to dispose of the token you received as salary on goods or services or convert it into INR, you must pay CGT on the respective transaction. To calculate the same, you can follow the below steps:
- Figure Out Your Basis: This is the original cost of your crypto, including the purchase price and any fees you paid. It’s what you paid for it initially.
- Determine Your Selling Price: This is how much you sold your crypto for, minus any selling fees.
- Calculate Your Capital Gain (or Loss): Subtract your basis from your selling price. If the result is positive, you have a capital gain. If it’s negative, you have a capital loss.
Capital Gain = Sale Consideration – Cost of Acquisition
- Apply The Tax Rate: You must pay a flat tax of 30% on the value of net gain. Moreover, a 4% health and education cess also applies to the taxable amount.
Now, these calculations can be very time-consuming; hence, you can use KoinX to generate crypto taxes in minutes.
Real-Life Scenarios
Imagine Maya, a software developer in India, received her monthly salary in Bitcoin. She received 0.1 BTC as a salary at the end of the month. On the day of receipt, the market value of 1 Bitcoin is INR 50,00,000. Then, the market value of her salary will be:
Taxable Income of Maya = 0.1 x INR 50,00,000 = INR 5,00,000
Following the new tax regime, the first INR 3,00,000 is a basic exemption; however, she must pay a 5% tax on the remaining INR 2,00,000 and a 4% health and education cess. Hence, her taxable income stands at INR 10,400.
Later, if she decides to sell all her BTC tokens, when the price of 1 BTC = INR 60,00,000, she will be liable to CGT.
- Cost Basis = INR 5,00,000
- Selling Price = INR 6,00,000 (0.1 x 60,00,000)
- Capital Gain = INR 1,00,000 (INR 6,00,000 – INR 5,00,000)
- Capital Gains Tax: 30% of INR 1,00,000 + 4% cess on CGT
- Net CGT = INR 30,000 + INR 1200 = INR 31,200
However, remember that the buyer will deduct a TDS of 1% on the selling price of the BTC as well. Hence, the buyer deducted INR 6,000 as TDS from the selling price of the BTC.
Ways to Reduce Tax On Monthly Crypto Salary
There are several strategies that you can leverage to reduce your tax liability on cryptocurrency salaries:
General Deductions
The old tax regime, also known as the regular regime, offers a broader range of deductions than the new one. These deductions help you reduce your taxable income, lowering your tax liability. Let’s delve into some of the most common deductions available under this regime:
- Section 80C Deductions: This powerhouse deduction allows you to claim a maximum of Rs. 1.5 lakh for investments made in various instruments like:
- Equity Linked Savings Schemes (ELSS): Mutual funds that invest in stocks.
- Public Provident Fund (PPF): A long-term investment scheme with attractive interest rates.
- Employee Provident Fund (EPF): A retirement savings scheme employers offer.
- Unit Linked Insurance Plans (ULIPs): Insurance plans with investment components.
- National Savings Certificate (NSC): Government-backed savings certificates.
- Tuition fees for your children: Paid for up to two children.
- Repayment of principal amount on a home loan.
- House Rent Allowance (HRA): If you pay rent, you can claim a deduction for HRA received from your employer. The deduction is capped at the minimum of:
- Actual HRA received
- 50% of your basic salary
- 10% of your basic salary if you live in a non-metro city
- Leave Travel Allowance (LTA): If your employer provides LTA, you can claim an exemption for the amount spent on travel for yourself and your family. This exemption is subject to certain conditions and limits.
- Section 80D Deductions: Claim a deduction for medical expenses incurred for yourself, your spouse, dependent parents, and children. The maximum deduction is:
- Rs. 75,000 for senior citizens (age 60 and above)
- Rs. 50,000 for individuals below 60 years
- Other Deductions: Numerous other deductions exist, including:
- Interest on education loan: Up to the entire amount paid.
- Donations: Donations to certain charitable institutions qualify for deductions.
- Disability: Deduction for expenses incurred due to disability.
Tax Planning
Collaborating with a tax professional to devise a comprehensive tax planning strategy tailored to the unique characteristics of cryptocurrency income can be advantageous.
A tax planning strategy designed explicitly for crypto salary income can help minimise tax liability. Through strategic planning and careful consideration of applicable tax laws and regulations, you can optimise your tax situation and ensure compliance while maximising savings.
Moreover, generating an accurate crypto tax report from a platform like KoinX can be beneficial in planning your crypto taxes. Let’s see in detail how KoinX can help in tax calculation.
KoinX In Action
KoinX is a crypto tax calculator and portfolio tracker that helps you track cryptocurrency transactions and calculate your capital gains and losses for tax purposes. It is designed for individual investors, traders, and tax professionals. It also offers several benefits for users, including:
- Accurate transaction previews: KoinX uses advanced 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-classified transactions: It automatically classifies 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.
- Support for multiple exchanges and wallets: It supports many cryptocurrency exchanges and wallets so that you can track all your cryptocurrency transactions in one place.
- User-friendly interface: The platform is user-friendly and easy to navigate, even if you need to become more familiar with cryptocurrency.
Overall, KoinX is a valuable tool for anyone who invests in cryptocurrency. It can help you save time, money, and effort on cryptocurrency taxes.
Conclusion
Understanding how your crypto salary is taxed in India can feel like deciphering a complex code. While the income tax and CGT 30% flat tax rate and 1% TDS may seem straightforward, various nuances and reporting requirements can add confusion.
Remember, ignorance isn’t bliss regarding taxes. Therefore, KoinX can be your one-stop shop for calculating crypto taxes in India. So what is the delay? Join KoinX today and stay compliant with taxes in India.
