If you’re a seasoned investor or someone who just hopped onto the cryptocurrency trend for passive income (or are considering investing), the Indian government’s Finance Act 2022 is something that you should definitely know about. The Finance Act 2022 introduced a new section under the Income-Tax Act of 1961 which now mandates taxes on virtual digital assets (VDA), which includes NFTs, cryptocurrencies, and other similar assets.
Read on to learn more about how taxes are calculated on crypto.
Cryptocurrency in India
Until 2022, Cryptocurrencies were largely ignored by the Indian government except in 2018 when the RBI restricted banking transactions to crypto exchanges. However, the Supreme Court overturned the ruling by the RBI in 2020, saying that the ban was unconstitutional.
Since then, the Indian cryptocurrency market has been on a boom leading to the government’s decision to introduce the new section under the Income-Tax Act of 1961 in 2022.
Understanding the taxation of Cryptocurrencies in India
Any investor who trades in cryptocurrencies, tokens (including NFTs) will need to declare their income from them as a capital gain if they hold these as investments. However, if they choose to trade in cryptocurrencies or tokens, then the income from these sources needs to be considered as business income.
The Indian government’s acknowledgment of the value of cryptocurrencies and tokens can be seen by including the “Virtual Digital Assets (VDA)” section in the Income Tax Return forms for the financial year 2022-23. The last date for filing your income tax returns for 2022-23 is 31st July 2023. If you miss this, you can file a belated return by 31st December 2023.
Crypto taxes apply to all investors, commercial or private, on their transfers of digital assets in India during the financial year. The tax rates remain the same for short-term and long-term gains and apply to all profits earned by the investor. The gains made from trading cryptocurrencies will now be taxed at the rate of 30%(plus 4% cess). If transactions exceed ₹50,000, then a 1% Tax deducted at source will be levied.
You can learn more about how Cryptocurrency and digital assets will be taxed here.
How to Calculate Crypto Tax
Now that you know you will be charged a 30% tax on your profits, you will need to note down the buying prices and selling prices of your crypto assets to figure out your gains. Here’s how you can calculate crypto taxes in India easily.
Step 1: Log onto Mudrex’s Crypto tax calculator.
Step 2: Select the assets you made profits or losses on in the financial year.
You can include multiple assets by clicking on “Add Assets.” which will help you calculate the crypto gains.
Step 3: Enter the buy price of the assets you transacted over the FY.
Step 4: Enter the selling prices of the assets to know your total gain/loss and the tax you need to pay.
If you make a profit
Your total gains will be visible below.
If you have faced a loss
If you did not make any profits on your crypto sales, then you are not liable to pay taxes on it.
Step 5: Calculate 4% on your tax liability as cess and surcharge if you have made a profit.
For this example,
The tax surcharge and cess will be 4% of ₹24000, which is ₹960.
Step 6: The total tax you will be liable to pay is the sum of the tax on the gains with 4% surcharge.
This means, for the example illustrated in step 5, the total tax payable would be ₹24000+ ₹960= ₹24960.
Crypto Transactions that are liable to tax
Some of the instances where you may have to pay tax on Crypto in India are:
1. Selling crypto
2. Mining crypto
3. Trading crypto
4. Receiving crypto as a gift
5. Staking rewards/airdrop of crypto
6. Receiving crypto as a salary
To know more about these in detail, click here.
How to avoid crypto tax in India?
There are no means to evade cryptocurrency taxes in India; attempting to do so is considered a criminal offense. However, to mitigate crypto tax liabilities, you can adopt these strategies to minimize your tax obligations.
1. Hold onto your cryptocurrency for the long term
2.Preserve your profits by holding them in stablecoins.
3.Get a Sideways look at Cryptocurrencies
Common Mistakes to Avoid in Cryptocurrencies Tax Calculation in India
A common mistake to avoid while calculating Cryptocurrencies taxes in India is that you will not be able to set off losses from one virtual digital asset against other crypto gains or other incomes.
Conclusion
Now that you have understood the taxation of cryptocurrency in India, make sure to ensure compliance with the tax regulations of the country. Ensure you calculate the taxable amount and include the surcharge correctly before paying. Use the Mudrex tax calculator to calculate the tax liability you must pay before Jul 31, 2023.
How to pay crypto taxes?
To pay crypto taxes, you must report your gains under the Schedule – Virtual Digital Assets (VDA) in relevant forms while filling out your ITR. This will ensure compliance with Indian regulations on crypto taxes.
FAQs:
- Do I need to pay taxes on my cryptocurrency investments in India?
Yes! It is mandatory to pay relevant taxes on your cryptocurrency investments. Your taxes on cryptocurrency will be calculated based on your net gains or net loss. There is no taxation on crypto mining yet. However, you will need to pay relevant taxes on selling or trading them. - Do I need to pay taxes on gifts or donations made from cryptocurrencies in India?
You do not need to pay taxes on giving crypto as a gift. However, If you receive crypto valued above Rs 50000 as a gift, you need to pay a tax of 30%. This will also apply when if you sell it in the future. - How to save tax on cryptocurrency?
You can save on crypto taxes by investing all your profits in stablecoins. When you exchange other crypto assets for stablecoins, you pay 1% TDS during the exchange and secure your investment in the long term. However, you will only have to pay the flat 30% tax when you cash in your stablecoins for fiat currency.
