News
ITR Filing 2024: How cryptocurrency gains are taxed in India – Money News
As the tax filing deadline approaches, cryptocurrency investors in India are gearing up to face the complexities of cryptocurrency taxation. Although the concept of taxing crypto assets is relatively new and may pose challenges for investors, the evolving landscape of innovation and technology has introduced simplified solutions for tax reporting of cryptocurrencies provided by compliant exchanges in India. These exchanges have taken proactive steps to ensure tax compliance for their users, forming partnerships with leading tax solution providers to automate the calculation of crypto tax liabilities tailored to the needs of Indian investors.
Recognizing the importance of crypto assets, the Finance Act 2022 introduced tax regulations for crypto assets in India. These assets are classified as “virtual digital assets” or VDA under the Income tax Act 1961. Pursuant to section 115BBH of the Act, any income arising from the transfer of VDA is subject to a flat rate of income tax of 30%. Taxable events include transactions such as converting digital assets into decree currency, trading between different types of virtual digital assets, or using VDA to purchase goods and services.
Income received as VDA as part of salary falls within the standard income tax bands applicable to individual taxpayers, rather than section 115BBH. However, any gains arising from subsequent transactions involving the transfer of these VDAs are subject to tax under section 115BBH.
Also Read: Home Buying: What is the Ideal Age to Buy Your Own Home in India?
Calculating the 30% cryptocurrency tax rate in India is simple as it applies uniformly to all investors, regardless of the nature of income or holding period. For example, if an investor makes a gain of INR 5,000 from selling crypto assets, a flat tax of 30% is levied on this income, resulting in a tax liability of INR 1,500 (plus surcharges and taxes).
In addition to income tax, a tax withheld at source (TDS) of 1% applies to VDA transfers, effective July 1, 2022. This deduction is subject to thresholds of INR 10,000 and 50 000 INR for certain people. While crypto exchanges are responsible for deducting TDS on sales transactions, buyers bear the responsibility for peer-to-peer transactions. Failure to comply with TDS obligations may result in financial and legal consequences.
Taxpayers can offset the 1% TDS deduction against their 30% tax liability on VDA income. Income tax return The forms for FY 2022-23 include a dedicated section for reporting gains from crypto and other VDA. Taxpayers should diligently consolidate crypto transactions across various exchanges and report them when filing their tax returns before the July 31, 2023 deadline.
It is crucial to note that attempting to avoid crypto taxes in India through foreign exchanges is not a legal solution. Failure to comply with tax regulations can result in hefty penalties, including interest charges and financial debt. Investors should follow reporting requirements and seek expert advice to ensure compliance with tax laws.
Key considerations for investors:
Taxation on gifts and airdrops: Gifts or airdrops of crypto assets exceeding INR 50,000 are taxed at a flat rate of 30%.
Taxation on mining and DeFi transactions: Crypto mining income is treated as business income and gains from the sale of crypto mining are taxable at 30%. DeFi transactions are subject to regular tax brackets.
Taxation on NFTs: Profits from non-fungible token (NFT) sales are taxed at a flat rate of 30%.
Staying informed about tax regulations and seeking advice from experts can ensure transparency and compliance when transacting crypto in India.
(By Abhinav Jain, Senior Vice President and Head of Finance at CoinDCX)
Disclaimer: The opinions and facts expressed above are those of the author. They do not necessarily reflect the opinions of Financialexpress.com. Readers are advised to consult their financial planner before making any investment.