Many people assume that only big traders need to worry about crypto taxes. But in India, even small transactions can be taxed if they cross certain limits. At the same time, some traders and NRIs may qualify for exemptions. Knowing these rules can help you avoid unnecessary tax burdens while staying compliant. Let’s break down who is exempt from crypto tax in India and how these rules apply.
General Cryptocurrency Taxation in India
In India, the taxation of cryptocurrencies is governed by specific provisions introduced in the Finance Act of 2022. These regulations categorize cryptocurrencies and other digital assets as “Virtual Digital Assets” (VDAs) and outline the tax implications for transactions involving these assets.
Income Tax on Cryptocurrency Transactions
Any income arising from the transfer of VDAs, including cryptocurrencies and Non-Fungible Tokens (NFTs), is subject to a flat tax rate of 30%. This rate applies uniformly, irrespective of the individual’s income tax slab. Notably, no deductions are permitted against this income, except for the cost of acquisition. Additionally, losses incurred from the transfer of VDAs cannot be set off against any other income, nor can they be carried forward to subsequent financial years.
Example: If an individual purchases cryptocurrency worth ₹50,000 and later sells it for ₹100,000, the gain is ₹50,000. This gain is taxed at 30%, resulting in a tax liability of ₹15,000.
Tax Deducted at Source (TDS)
To monitor cryptocurrency transactions, a 1% Tax Deducted at Source (TDS) is levied on the transfer of VDAs. This TDS applies when the aggregate value of transactions exceeds ₹50,000 in a financial year for specified persons (or ₹10,000 in some cases). The TDS is deducted at the time of credit or payment, whichever is earlier, and is applicable from July 1, 2022.
Example: If an individual sells cryptocurrency worth ₹60,000, a TDS of 1% (i.e., ₹600) will be deducted by the buyer or the exchange facilitating the transaction. The seller will receive ₹59,400, and the ₹600 TDS will be remitted to the government.
Tax Exemptions for Small Traders
In India, the taxation framework for cryptocurrencies is stringent, applying uniformly to all individuals regardless of the scale of their trading activities. Given the current regulations, small traders are not exempt from cryptocurrency taxes. Regardless of the transaction size, any profit from cryptocurrency trading is subject to a 30% tax. Additionally, if a small trader’s transactions exceed the specified TDS thresholds within a financial year, the 1% TDS will also apply.
Example: If a small trader conducts cryptocurrency transactions totaling ₹12,000 in a financial year, a 1% TDS of ₹120 will be deducted by the exchange or buyer. This TDS amount can be adjusted against the trader’s total tax liability when filing the income tax return.
Tax Implications for NRIs
According to the Income Tax Act, 1961, NRIs are liable to pay tax on income that is received or deemed to be received in India, or that accrues or arises or is deemed to accrue or arise in India.
If an NRI transfers cryptocurrencies through foreign exchanges and the income is received outside India, it may not be taxable in India.
However, the taxability would depend on the NRI’s residential status and the provisions of the Double Taxation Avoidance Agreement (DTAA) between India and the country of residence
Double Taxation Avoidance Agreements (DTAA)
A DTAA prevents individuals and businesses from being taxed twice for the same transaction/income by two different countries. This is a treaty between two or more countries designed to protect taxpayers.
Reporting Requirements
In India, the taxation of cryptocurrencies, classified as Virtual Digital Assets (VDAs), mandates specific reporting requirements to ensure compliance with the Income Tax Department (ITD). Adhering to these requirements is essential for individuals and entities engaged in cryptocurrency transactions.
Income Tax Return (ITR) Filing
Taxpayers must report income from cryptocurrency transactions in their Income Tax Returns (ITR). The appropriate ITR form depends on the nature of the income:
• ITR-2: For individuals reporting cryptocurrency gains as capital gains.
• ITR-3: For individuals reporting cryptocurrency income as business income.
A dedicated schedule, Schedule VDA, has been introduced to detail cryptocurrency-related gains and losses. Taxpayers must accurately complete this schedule to ensure proper reporting.
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Conclusion
Crypto tax laws can be tricky, but knowing the right exemptions gives you an edge. Whether you’re a small trader or an NRI, staying compliant while maximising your returns is key. The right tools make all the difference. Download the Mudrex app now and simplify your crypto journey.
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FAQs
How much crypto income is tax free in India?
In India, there is no tax-free threshold for cryptocurrency income. All profits from the transfer of Virtual Digital Assets (VDAs), including cryptocurrencies, are taxed at a flat rate of 30%
How to avoid 30% tax on crypto?
Legally avoiding the 30% tax on crypto gains is not feasible, as the tax applies uniformly to all profits from cryptocurrency transactions. Attempting to evade taxes can lead to severe penalties. It’s advisable to comply with tax regulations and consider consulting a tax professional for guidance.
How to pay zero tax on crypto?
Currently, there are no provisions in Indian law that allow for zero tax on cryptocurrency gains. All profits from cryptocurrency transactions are subject to a 30% tax, with no deductions permitted except for the cost of acquisition.
Will India remove crypto taxes?
As of now, there are no official indications that India plans to remove or reduce the existing taxes on cryptocurrency transactions. The current tax framework remains in effect.
