Introduction
Cryptocurrency Taxation in India: In the wake of the 2022 Union Budget, the Indian government made a significant shift in its stance on cryptocurrencies and virtual digital assets (VDAs). As a result, it has become imperative for individuals to grasp the intricacies of cryptocurrency taxation in India. Prior to the 2022 financial year, the regulatory landscape for cryptocurrencies in India was ambiguous. However, with the introduction of Section 115BBH in the 2022 budget, cryptocurrencies became subject to taxation in India starting from April 1, 2022.
Understanding Cryptocurrency Taxation
(i) Tax Rate:
Any profit derived from cryptocurrency assets is now taxed at a fixed rate of 30%, in addition to relevant surcharges and a 4% cess, effective from April 1, 2022. This tax rate applies uniformly to private investors, professional traders, and all individuals involved in cryptocurrency transactions, without differentiation between investment income and business revenue or short-term and long-term gains.
(ii)No Deductions:
It’s important to note that, except for purchase costs, no deductions are allowed against cryptocurrency gains.
(iii) TDS on Transfers:
Another crucial aspect of cryptocurrency taxation in India is the introduction of a 1% Tax Deducted at Source (TDS) on cryptocurrency transfers starting from July 1, 2022. This TDS is applicable if cryptocurrency transactions exceed ₹50,000 in a financial year (or ₹10,000 in certain cases).
When is Cryptocurrency Taxable?
Cryptocurrency transactions subject to the 30% tax rate:
(i) Purchasing cryptocurrency using Indian Rupees or other fiat currencies.
(ii) Trading stable coins and other cryptocurrencies.
(iii) Using cryptocurrency for buying goods and services.
However, there are exceptions when the 30% tax does not apply:
(i) Holding cryptocurrency.
(ii) Transferring cryptocurrency between your wallets.
(iii) Receiving a cryptocurrency gift from close family members totaling ₹50,000 or less.
TDS Implications
From July 1, 2022, a 1% TDS is applicable to cryptocurrency transfers, which refers to changes of ownership such as sales, exchanges, or expenditures. This TDS is primarily aimed at recording transaction information and tracking Indian investors’ cryptocurrency investments.
In P2P transactions, the buyer is responsible for withholding TDS, and in crypto-to-crypto exchanges, both the buyer and the seller are subject to a 1% TDS.
However, if a “specified person” engages in cryptocurrency trading and the total value of their transactions does not exceed ₹50,000 in a single fiscal year, TDS is not required. The TDS limit reduces to ₹10,000 for taxpayers other than the specified individuals under certain conditions.
(i) You either had no business revenue during the previous fiscal year or sales/gross receipts/business income up to ₹1 crore.
(ii) You had sales, gross revenues, professional income, or none of the above in the preceding fiscal year, up to ₹50 lakhs.
Cryptocurrency Losses and Taxation
Section 115BBH prohibits offsetting cryptocurrency losses with gains or income from either crypto or other sources. Additionally, only the acquisition cost is considered for deductions.
Tax Treatment of Lost or Stolen Cryptocurrency
While the Income Tax Department has not provided specific guidelines on lost or stolen cryptocurrency, it is unlikely that investors can claim losses from such incidents, given the strict position on crediting crypto losses against profits.
Taxation of Crypto Purchases and Gifts
Purchasing cryptocurrency using Indian Rupees or fiat currency is currently tax-free.
When acquiring crypto through P2P platforms or overseas exchanges, a 1% TDS is applicable.
Gifts of cryptocurrency are subject to income tax based on their fair market value, with exemptions for immediate family members, gifts totaling less than ₹50,000 in a fiscal year, and marriage-related gifts and inheritances.
Calculation of Cryptocurrency Tax
To calculate your cryptocurrency tax, determine your cost basis, which is either the purchase price or the fair market value in Indian Rupees on the day of acquisition. Deduct this cost basis from the sale price or the cryptocurrency’s fair market value on the day of sale, and calculate tax at the rate of 30% on the resulting income.
Conclusion: Demystifying Cryptocurrency Taxation in India 2023: A Comprehensive Guide
The Indian government’s classification of cryptocurrencies as virtual digital assets has made cryptocurrency taxation a reality in India. Hence, to ensure compliance and accurately report financial activities related to cryptocurrencies, it is crucial to navigate the cryptocurrency tax landscape effectively. Understanding the tax implications of various cryptocurrency transactions is key to managing your tax obligations in India.
For more details on crypto taxation, you may follow the link of ICMAI-https://icmai.in/TaxationPortal/upload/IDT/Article_GST/259.pdf
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