Coined after the financial crisis of 2008, cryptocurrencies have become quite popular in the past few years. Based on blockchain technology, cryptos are a hot pick among all assets. However, investing in this asset is a never-ending debate, especially after the announced tax on cryptocurrency in India. 

If you have or are planning to invest in cryptocurrency in India, taxation is the primary factor you should consider.  How can it impact your investments and returns? Let’s find out.

What is Crypto Tax? 

Finance Minister Nirmala Sithraman, in Budget 2022, amended new tax rules for investing in cryptocurrency in India. The FM proposed that cryptocurrency will be classified as a Virtual Digital Asset (VDA); thus, it would attract tax implications. This is not limited to cryptos, as NFTs are also charted under the same sheet. 

According to the new rules –

• VDAs would be considered assets and thus would be taxed at a flat 30% when an individual transacts it and earns an income. Other assets, such as land, attract a Long-term Capital Gains Tax (LTCG) of 20%.

• In addition, a 1% TDS (tax deducted at source) will be applied to all the VDA transactions, whether profitable or not. 

• Also, the losses cannot be compensated against the profit of any other asset. 

• If your transaction amount is less than Rs. 10,000, you do not have to pay TDS. But please note that these limits apply at the user level across all platforms a user trades on. Since Mudrex won’t be aware of the trades across other platforms, we will deduct TDS from the first applicable transaction effective July 1, 2022, which you can claim back if your total transaction amount across exchanges is less than Rs. 10,000.

The crypto tax on gains came into force on April 1, 2022, while deducting TDS on transactions began on July 1, 2022. 

Why is Crypto Taxed in India?

The cryptocurrency tax in India hints at the government’s intention toward a favorable crypto ecosystem in the country. Many believe it is the first step toward regulations. But since a detailed regulatory framework is distant, crypto taxation could come in handy in taming the crypto wild west.

Some possible concerns of the government over cryptos are: 

• A lack of well-established laws regarding data protection exposes investors to fraudulent activities.  
• No concrete laws yet to regulate this currency–a safe haven for money laundering and funding terror activities. 
• The government doesn’t want crypto to compete for INR/USD.

While cryptos are not legal tender in India, it is open for people to trade and invest in. You can, too, join the crypto bandwagon with Mudrex Coin Sets.

How Is Cryptocurrency Taxed in India?

The Finance Bill 2022 introduced new provisions for tax on cryptocurrency in India that you must pay attention to before getting into any crypto transactions. 

Let’s understand it with an example. Suppose Tony had purchased Bitcoin worth Rs. 20,000 five years ago and now decided to sell it. So as per the new crypto tax, any gain arising from this sale will attract a 30% tax. The catch here is that he can not deduct any expenses incurred while purchasing the Bitcoin to reduce his taxable profit. 

So, if he sells Bitcoin now at Rs. 60,000, his taxable gain would be Rs. 40,000. Because of the 30% crypto tax, he will pay Rs. 12,000. 

As the transaction amount is more than Rs. 10,000, he will also have to pay 1% TDS on the transaction amount–Rs. 600. 

He has the chance to claim TDS back when filing the tax if the cumulative amount in a financial year is not beyond Rs. 10,000. Instead of gain, if his deal would have incurred a loss, filing it can help him get a refund if it’s within the stated criteria.

The crypto tax further states that Tony cannot settle the loss against the profit of any other asset or income, including digital assets or other investments like equity, real estate, etc. 

Also, Tony cannot transfer or carry forward the loss to the next financial year to deduct from the potential gains. 

This is not the case with other financial assets. For example, if Tony incurs a loss on selling company ‘A’ stock during an FY, he can offset it with his income from other investments, say from the sale of company ‘B’ stock for the same FY. If he does not have any gains to set off his loss, he can carry it forward till the next eight assessment years. 

Short-term capital loss can be settled against any short or long-term capital gains. Long-term capital gains can be settled against only long-term capital gains. The only requirement is that sales should have been undertaken after March 31, 2018.

This rule doesn’t apply to cryptocurrency. learn how to calculate crypto tax in 2023 here

If you find it difficult to calculate you can make use of crypto tax calculators which help you calculate the taxes on crypto gains.

When Do You Need to Pay Tax on Crypto in India?

The crypto tax would start billing on your bottom line from the assessment year 2023-24. The tax on cryptocurrency in India is not only on selling it but on almost all sorts of transactions involving it. 

Some of the instances where you may have to pay tax on Crypto in India are: 

1. Selling crypto

If you sell crypto, as mentioned above, it will attract a 30% tax on gains, and 1% TDS would be deducted from the transaction amount. 

2. Mining crypto

If you mine crypto, it would be classified as a self-generating capital asset. While you do not pay tax for mining, you will pay the tax when selling the crypto. You may deduct the cost of acquiring the crypto through mining as a taxpayer. 

3. Trading crypto 

The GST angle may enter your crypto sale if you are trading crypto frequently and if it falls under business income. If you are showing crypto as an investment, the gains on selling it would be considered capital gain and will attract tax accordingly.  

4. Receiving crypto as a gift

If you have received crypto as a gift, it will be taxed at 30% in addition to cess and surcharge at your end. 

5. Staking rewards/airdrop of crypto

Both the stated activities would result in acquiring crypto as a gift. And thus, the tax will be applied at the recipient’s (your) end. 

6. Receiving crypto as a salary

In this scenario, you will be taxed at 30%, and thus, it is probably not a good idea to make crypto a part of the salary structure. However, if you are already in the 30% tax bracket, it would not make any difference to you.

What Are the Tax Implications of Holding Crypto as an Investment in India?

If you hold crypto as an investment tool in India and profit from it, that would be considered capital gains. 

• Short-term gains: A tax according to your slab would be applied if you hold crypto for less than three years. 
• Long-term gains: If you hold crypto for more than three years, the profit will fall under long-term capital gains taxed at 20%. 

If your crypto transaction turns out to be a loss, you will still have to pay TDS. The Crypto Bill is still in progress, and the government is figuring out digital assets. Thus, the tax implications are not clear at the moment. 

Is There Any Tax on Lost or Stolen Crypto in India?

There are no specific and explicit provisions for tax on lost or stolen cryptocurrency in India. 

Does Crypto Income Come With More Than 30% Taxation?

Beyond the 30% flat tax on gains of cryptos, there are certain cases where more tax on cryptocurrency in India can be levied. 

• 1% TDS on all crypto transactions.
• GST may apply when it is a business income, but there is no clear set of rules.
• If you receive crypto as a gift, you pay a tax of 30%. This would also apply when you sell it in the future.
• If you have received crypto as a reward/airdrop, you may pay double taxes, first when you receive it and later when you sell it. 

What’s in It For Investors?  

Well, new tax rules on cryptos make investing in cryptocurrency a little expensive, but there is also upside potential. Cryptocurrencies, including Bitcoin, Ethereum, Tether, etc., have, over the years, gained higher returns. While this digital asset class has its own risks and limitations, investing after thorough due diligence can help investors diversify their portfolios and create wealth over the long run. 

Conclusion

There are already 15-20 million individuals exploring crypto investments in India, and the number is rising despite the roadblocks. Tax on cryptocurrency in India may appear as a setback for investors, but the tax implications are not certain yet. And the Crypto Bill is much-awaited. The Crypto Bill will provide a better understanding of the future of digital assets in India and the use of technology associated with it. It is not that the Indian government does not see the potential in digital assets because the government announced the launch of the Digital Rupee in the same Union Budget. The concern is the safety regulations on cryptocurrency, which they need to improve. 

FAQs 

1. Do I have to pay taxes on my crypto assets if I have not made any profits this fiscal year?

No. If you have incurred losses on your crypto sales or have not sold them at all and continue to HODL (more power to you), you are not liable to pay crypto taxes in this cycle.

2. How do I find out my TDS liability?

You are liable to pay 1% of any crypto transactions as TDS. However, if your cumulative transaction amount is not more than Rs. 10,000 in a FY, you can claim the TDS as a refund while filing ITR. If you are a Mudrex investor, you can now download your TDS Report on the app

3. How much tax do you pay on cryptocurrency?

If you sell/transact/transfer cryptocurrency, you must pay a 30% flat tax on any gains. In addition, you have to pay TDS at 1%. Depending on the type of income you present, i.e., business income, additional tax implications such as GST may apply. The officials are contemplating a 28% GST rate, but they are yet to reach a decision.

4. Am I liable to pay lesser taxes if my crypto profits are long-term capital gains?

According to the Indian crypto tax regime, you are taxed the same irrespective of if your gains are long-term or short-term capital gains.

5. What happens if I don’t file my crypto taxes?  

Not filing crypto tax is an offense, and it can lead to serious actions against you because TDS is already deducted when you execute a transaction. Also, the KYC documents are submitted for opening an account with the crypto exchange, which the exchange reports. Thus, not filing taxes may lead to you receiving a notice from the IT department and increase the complications if you don’t cooperate.