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Wondering how crypto taxation works in India? How much cryptocurrency tax do you have to pay in India? How 1% TDS is taken from crypto? Don’t worry, we’ve covered all aspects of cryptocurrency taxation in India and created a comprehensive guide for you –
According to the 2022 Union Budget, cryptocurrencies were to be categorized as Virtual Digital Assets (VDAs). It’s confusing to understand but cryptocurrencies are classified as assets, but their tax classification differs from that of traditional assets. A person is required to pay a 30% flat tax under the new Crypto Tax Law on income derived from the transfer of cryptocurrencies and other virtual digital assets, such as Defi and NFT.
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What are Virtual Digital Assets (VDAs)? Let’s understand –
Subsets of all digital assets traded on a blockchain, such as non-fungible tokens (NFTs), cryptocurrencies, and other virtual assets, are called virtual digital assets. VDAs were defined in new clause (47A) of the Finance Bill 2022 under section 2 of the Computers Act 1961.
According to the clause, a virtual digital asset (hereafter “VDA”) is defined as any information, code, number or token (being neither Indian currency nor foreign currency), generated by cryptographic techniques or otherwise, whatever whether the name called, giving a numerical representation of value exchanged with or without consideration, with the promise or representation of having an intrinsic value, or functions as a store of value or a unit of account, including its use in any Fiat money.
This includes its application to any investment or financial activity. VDAs, however, aren’t just used in investment programs; they can also be transmitted, stored or exchanged electronically. Due to the wording “produced using cryptographic techniques or otherwise” used in the finance bill, virtual digital assets (VDAs) also encompass cryptos and other digital assets.
Do you have to pay cryptocurrency tax in India?
Yes, India has levied taxes on cryptocurrencies. The Income Tax Department has provided guidance on how accurately cryptocurrency is taxed in India. In short, every crypto investor must pay a 30% flat tax on profits or income gains from cryptocurrency, and a 1% tax will be withheld at source in the form of TDS for the sale or VDA (cryptocurrency) transfer.
Key Points of Cryptocurrency Taxation in India
- The proposed 30% crypto tax is effective from April 1, 2022, and the proposed 1% TDS is effective from July 1, 2022.
- Profit gains from any Virtual Digital Asset (VDA) should be taxed at a flat rate of 30%.
- The transfer or sale of crypto assets is charged with 1% TDS (in some cases a higher TDS of 5% is also applicable)
- Gifts received in the form of crypto assets would be taxable if the fair market value exceeds the threshold of Rs 50,000.
- Profits are considered income and subject to tax under Section 115.
- Under the Income Tax Act, airdrops or crypto coins obtained through gambling may be considered gifts, and such gifts are taxable in the hands of the recipient.
- There is no way to be eligible for the discounted tax in case of long-term income than on short-term ones (relative to the stock market)
- Starting with the 2023-2024 tax year, the taxpayer will have to pay a 30% tax on cryptocurrencies and other VDAs.
- Compensation of a loss of one VDA with the income of another VDA is not applicable in the case of crypto investments.
- You cannot carry forward a loss from the cryptocurrency transfer to the next year to offset the profit for that year.
When will you pay crypto tax in India?
Underlying are the scenarios where you are liable to pay crypto taxes according to the income tax department of India.
- Earning profit when selling crypto for INR or any other available fiat currency
- Exchange crypto for crypto, including stablecoins.
- Make payment in Crypto for goods and services
- Get payment in the form of crypto
- Get a gift in the form of crypto
- Earning Crypto Staking
- Earn from Crypto Mining
- Gifts in the form of airdrops
What is 1% TDS on Crypto in India?
According to new government guidelines, investors in crypto assets must pay 1% TDS on their transactions from July 1, 2022. With the adoption of the 2022 Finance Law, Article 194S was added to the law income tax. According to the new section, the sale or transfer of a virtual digital asset (VDA) must deduct income tax on this money in an amount equivalent to 1% of the payment which falls under the TDS.
When will 5% higher TDS be applicable on Crypto In India?
As most crypto investors fall under the 1% TDS bracket, a small portion of us will also have to pay a higher 5% TDS. As Section 206AB indicates, if the underlying conditions are not met, Exchange is likely to deduct higher TDS of up to 5%, in accordance with government guidelines.
What is Crypto Loss Tax in India?
Losses related to digital assets cannot be adjusted against other profits or income, as cryptocurrency is not considered an asset but rather an income in India. There is no taxation on losses resulting from trading VDAs.
How is the tax applied to gifts in the form of crypto?
The proposed cryptocurrency tax laws in India take a generalized approach across the board, and this extends to how the ITD can tax cryptocurrency gifts. Recipients of virtual assets, including NFTs, are required to pay a flat rate of 30% income tax on the value of their donations. However, there are a few exceptions to this rule:
- Gifts totaling less than Rs. 50,000 (in a single fiscal year, not at each donation) are exempt from tax.
- Family gifts are tax exempt. Gifts from parents, siblings and other family members are tax exempt. Similarly, gifts received through marriage, bequest or inheritance are all exempt from income tax, regardless of their value.
How is TDS deducted on the BuyUcoin app?
BuyUcoin Web & App has incorporated the guidelines provided by the Government of India. TDS will be levied on the user’s applicability under Section 206AB (Click here to read the detailed explanation of Section 206AB). As there is no way to determine the net income of individual and business users, TDS will be deducted on every trade made on the exchange.
The scenario in which TDS will be deducted on the BuyUcoin app
- Buy in EZ OTC – No TDS Deduction
- Sell in EZ OTC – 1% or 5% TDS deduction
- Buy in Classic – No TDS deduction
- Sell in Classic – 1% or 5% TDS deduction
TDS deduction explained with an example
Suppose you have bitcoins in your crypto wallet (you have already bought BTC) and you want to sell them.
So you have created a sell order on the EZ OTC market for a value (trade value) of ₹50,000
Trade value = ₹50,000
Your order summary will look like this –
The current Bitcoin price = ₹15 08,899.44
Note: On selling ₹50,000 crypto assets, you are sampled with 1% TDS which will be deducted by the exchange.
1% TDS of ₹50,000 trade value = ₹500
Note: In some cases (under Section 206AB), where the user has not filed an ITR in the last 2 fiscal years, a higher TDS of 5% will be levied.
TDS 5% higher than ₹50,000 Trade Value (if any) = ₹2,500
So in your case 1% TDS has been applied and 500 INR is deducted as TDS by the exchange which will be paid to the government.
Eventually you will sell Bitcoin for INR 50,000 which is 0.032805 bitcoin but you will receive a payment of INR 49,500
Is 1% TDS mandatory for all crypto investments?
The 1% TDS will be applicable from July 1, 2022 for all sale transactions of crypto assets and NFTs, in accordance with updated income tax laws. However, if the income tax due is less than the TDS deducted, this amount may be claimed as a refund when the ITR for the year is realized.
Is the 1% TDS still applicable even after paying the 30% tax?
Let’s take an example –
Tushar bought bitcoin at the price of INR 50,000 and qty 1 BTC at the beginning of the financial year. Tushar saw that the market was down and maintained his investment in the hope that sometimes the market will rise. Eventually, towards the end of the financial year, the market turns green and Tushar decides to sell his bitcoin at the price of INR 1.50,000.
Bitcoin purchase price – INR 50,000
Quantity purchased – 1 BTC
Bitcoin Sell Price – INR 1,50,000
Sale Quantity – 1 BTC
INR created – 150000
Applicable Tax – 1%
Deduction of TDS amount – INR 1,500
INR received after TDS deduction – 1,48,500
Gain profit – INR 1,00,000
Gains tax – 30%
Amount of tax payable – 30% of INR 1,00,000 = INR 30,000
Tax paid under TDS = 1,500
Last tax remaining to be paid at the end of the year = 28,500
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