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The current state and how the 2024 Union budget can help
As the global cryptocurrency markets boom, the excitement among Indian investors is also palpable. However, amidst the euphoria, it is essential to remain aware of the tax implications that come with investing in cryptocurrencies in India. With the Union Budget 2024 on the horizon, understanding the current tax framework and anticipating potential changes can help investors make informed decisions and optimise their portfolios.
The current tax landscape
Cryptoasset taxation in India has evolved over the past few years, with the government gradually tightening regulations to bring more transparency and accountability to the burgeoning sector. Currently, the tax treatment of cryptoassets is as follows:
Income tax on capital gains:Crypto gains are taxed at 30% regardless of income brackets and no loss transfer is currently allowed.
1% TDS on sale of crypto assets: Crypto assets, when sold (or converted into another), attract a 1% TDS deduction which is paid into the individual’s PAN account. These can be offset or recovered at the end of the financial year.
Planned changes in the Union budget for 2024
As the Union Budget 2024 approaches, there are several potential changes that could impact cryptoasset taxation in India. Here are some areas to watch:
Details on DeFi, Staking and Airdrops: Airdrops, decentralized finance (DeFi) activities, and staking have gained popularity among Indian investors. However, the tax treatment of income from these activities remains ambiguous. The upcoming budget may provide much-needed clarity on whether income from airdrops, staking, and DeFi should be treated as capital gains or ordinary income.
Rationalization of TDS: The 1% TDS on cryptocurrencies is considered very high by investors and traders. The industry has long been calling for this rate to be rationalized to 0.01% in order to attract more people to the sector. The logic is that eventually, the government would be able to levy taxes on a larger pool of taxpayers while still retaining the ability to track all cryptocurrency sales.
Reporting Requirements: The government could also introduce stricter reporting requirements for cryptocurrency transactions. This could include mandatory disclosure of cryptocurrency holdings and transactions on tax returns, similar to reporting requirements for foreign assets.
Practical advice for cryptocurrency investors
In light of current and anticipated tax regulations, here are some practical tips for Indian crypto investors to navigate the current bull run:
Limit the number of transactions: The more trades you make, the more TDS is deducted, which limits your capital. Also, losses from one trade may not be offset by gains from another if the crypto asset is different. A prudent strategy would be to limit trades to a minimum and not react to volatile market movements.
Keep detailed records: Keep complete records (for five years or more) of all your cryptocurrency transactions, including purchase and sale dates, amounts, and transaction IDs. This will simplify the process of calculating capital gains and ensure accurate tax reporting.
Plan for long-term gains: The Union government has always given favourable tax treatment to long-term investments in traditional investments such as fixed deposits. If the government replicates this approach in the crypto space, it would be prudent to consider long-term investments.
Consult a tax specialist: The crypto tax landscape can be complex and subject to change. Consult a tax professional or an exchange like Giottus, an expert in crypto tax, to help you navigate the intricacies of tax compliance and optimize your tax strategy.
Stay informed: Stay informed about the latest developments in cryptocurrency taxation and regulation. Being proactive and informed can help you make timely decisions and avoid potential pitfalls.
As we await the Union Budget 2024, it is important to prepare and understand the current and potential tax implications to make the most of the current bullish trend. With careful planning and strategic decision-making, you can make the most of your cryptocurrency investments and ensure compliance with India’s ever-changing tax regulations.
(The author is the CEO of Giottus Crypto Platform)
Disclaimer: The opinions, beliefs and views expressed by the various authors and forum participants on this website are personal and do not reflect the opinions, beliefs and views of ABP Network Pvt. Ltd. Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any losses resulting from such transactions. Cryptocurrency is not legal tender and is subject to market risks. Readers are advised to seek expert advice and carefully read the offering documents and related material literature on the subject before making any type of investment. Cryptocurrency Market predictions are speculative and any investments made will be at the sole cost and risk of the readers.