Crypto Tax in India: An Overview

Is Crypto Taxed in India?

Yes, cryptocurrency earnings and transactions are taxed in India. Despite not legally recognizing cryptocurrencies, the Indian Government announced tax policies around virtual digital assets in Union Budget 2022.

After several years of careful analysis and research, focusing on the benefits and detriments of cryptocurrencies, the Indian Government finally included crypto assets in its tax guidelines. While announcing the tax rules, the Financial Minister of India Nirmala Sitharaman addressed cryptocurrencies, non-fungible tokens, and all other types of crypto assets with an umbrella term “Virtual Digital Assets”.

How Does Crypto Tax in India Work?

According to Section 115BBH of the Finance Bill, various types of transactions involving cryptocurrencies are subjected to tax. The following tax guidelines summarizes the crypto tax in India and help you understand how it works.

When investors make profits during the cryptocurrency trading, they need to pay 30% tax on their earnings. Adding to this, investors also need to pay 4% cess tax. Additionally, 1% TDS on crypto is also levied on investors for transfer of cryptocurrencies. The Indian Government started applying this for all crypto transfers worth more than 10,000 INR from July 01, 2022.

All these crypto tax rules are applicable for all types of investors such as retail investors and commercial investors, whoever transfer cryptocurrencies. The 30% crypto tax in India also applies to all types of earnings, whether short-term or long-term, made from cryptocurrencies by the investor.

Furthermore, the Finance Bill also mentioned that gifting of digital assets also comes under tax rules. And, in this case, the receiver of the gifts needs to pay the tax rather than the sender.

Additional Conditions to Know About Crypto Tax in India

The Finance Bill of Union Budget 2022 provided further clarity on different scenarios that come into the tax provision. Let us look at some important conditions to be applied regarding crypto tax finings in India.

• Earnings made from trading of all types of virtual digital assets, cryptocurrencies or NFTs, are prone to 30% crypto tax.
• 1% TDS is applied to crypto transactions such as buying and selling of cryptocurrencies. This also includes transfer of digital assets from one person to another. However, transfer of cryptocurrencies from one wallet to another of the same person is exempted from the 1% TDS.
• When reporting the income investors made from cryptocurrencies, only the cost of acquisition of cryptocurrencies can be deducted.
• In case an investor makes losses from one cryptocurrency, it cannot be offset against the earnings of another cryptocurrency.
• All gains made from virtual digital assets should be reported to the Indian Government under schedule VDA in the ITR.
• In the case of crypto miners, the infrastructure cost is not considered as cost of acquisition and cannot be set-off against income from crypto mining rewards.

Types of Transactions Liable to Crypto Tax in India

Now that we understand different types of scenarios where tax rules are imposed, let us also understand different types of transactions that are liable to tax.

• All crypto-to-fiat and crypto-to-crypto transactions.
• Conversion of one type of digital asset into another. For example, conversion of Bitcoin into a stablecoin or an NFT into Ether.
• Receiving cryptocurrencies as a payment for goods and services.
• Spending cryptocurrencies in exchange for goods and services.
• Receiving cryptocurrencies as salary from employers.
• All kinds of crypto income – trading profits, staking rewards, airdrops, mining rewards, etc.

Union Budget 2023 Updates on Crypto Tax

After announcing the tax guidelines in Union Budget 2022, the Finance Ministry of India provided clarification on 115BBH section. It was mostly regarding how the cost of acquisition and losses come into play while reporting the crypto income.

In Union Budget 2023, the Finance Ministry announced new updates in regards to the crypto tax in India, along with the last date to file income tax returns. The primary update among them is that the investors need to declare income from virtual digital assets as capital gains if they hold them as investments. However, if investors hold them for trading purposes, then the income should be reported as business income.

The Finance Industry also created a dedicated section called Schedule – Virtual Digital Assets (VDA) in the new Income Tax Return (ITR) forms. This helps investors report the income from Virtual Digital Assets seamlessly.

Crypto Tax in the Upcoming Budget 2024: What’s Next?

The Finance Ministry of India is going to present a new Union Budget 2024 on February 01, 2024. While there are upcoming general elections in the country, Finance Minister Nirmala Sitharaman is going to present an Interim Budget for the time being.

After the Indian Government included cryptocurrencies for the first time in Union Budget 2022, it provided some updates on the same in Union Budget 2023. Thus, several investors are expecting some new tax rules or modifications to the existing crypto tax policies in India.

However, this would not be a complete Union Budget but an Interim Budget. So, we would need to wait for some more time to see if the upcoming Union Budget will include crypto tax policies.