India has witnessed a substantial surge in cryptocurrency investment and trading, making it one of the largest countries in terms of crypto holdings. However, the regulatory landscape for cryptocurrencies in India remains uncertain, emphasizing the importance of understanding the legal framework before engaging in crypto transactions.
source: https://www.forbesindia.com/blog/finance/cryptocurrency-tax-your-definitive-guide-to-new-rules/
In the 2022 Budget, the Indian government clarified its stance on cryptocurrency taxation, introducing a taxation framework for Virtual Digital Assets (VDAs), including cryptocurrencies. This article aims to shed light on various aspects of cryptocurrency taxation in India, including taxable events, tax calculations, Tax Deducted at Source (TDS) on crypto transactions, tax planning strategies, and compliance with tax laws.
Purchasing: This occurs when you spend cryptocurrency to acquire a product or service.
Exchanging: When you swap one cryptocurrency for another.
Trading: This involves exchanging cryptocurrency with FIAT currency, like ₹ (INR).
Earning: When you receive cryptocurrency as payment for a service or product you provided.
Gifts: Receiving cryptocurrency as a gift from someone.
A 30% tax will be applied to any profits generated from the above transactions, regardless of whether they are short-term or long-term gains.
How to calculate crypto taxes in India:
Taxation on cryptocurrency income can be complicated and is dependent on a number of factors. However, you can determine cryptocurrency taxes in India by taking these two steps:
1. Identify the source of income: There are various ways to earn cryptocurrency, including mining rewards, trading profits, staking rewards, and accepting it as payment for goods or services. Each type of income may have different tax ramifications.
2. Calculate the cost basis: You need to know the cost basis of your cryptocurrency assets in order to determine your capital gains or losses. This often includes the price you paid for the cryptocurrency as well as any fees or commissions related to the transaction.
TDS on crypto transactions in India:
TDS on crypto transactions in India: A 1% Tax Deducted at Source (TDS) will be applied on the transfer of cryptocurrency assets starting on July 1, 2022. This is in addition to the 30% tax on gains from trading cryptocurrencies. The TDS will apply to all transactions, regardless of the amount.
However, there is an exemption for transactions below 50,000 INR in a financial year. In some cases, there is also an exemption for transactions below 10,000 INR.
Here’s how TDS in crypto works:
Crypto tax planning in India:
It's crucial to maintain thorough records of all your cryptocurrency transactions and track all gains and losses in order to reduce your tax liability and be compliant with Indian tax rules. Tax-deductible costs associated with your investments, such as fees and commissions, can also be claimed.
How to stay compliant with crypto tax laws in India?
Keep detailed records, keep an eye on any transactions, and deduct any costs associated with your investments from your taxes in order to comply with Indian crypto tax rules. It's essential to file your taxes on time and correctly because doing so is a big element of remaining compliant in India. The rules for taxation apply the same irrespective of whether you are trading using an exchange or a self-custody wallet like Obvious to swap or buy cryptocurrency. Using self-custody wallets like Obvious is recommended as you can take custody of your funds.
In conclusion, everyone participating in cryptocurrency transactions must be aware of and compliant with India's crypto tax legislation. You can reduce your tax liability and remain in compliance with Indian tax rules by maintaining accurate records and remaining up to date with the most recent requirements. We really hope that this article has given you useful knowledge about cryptocurrency taxation in India. Always get advice from a tax expert familiar with bitcoin taxation if you have any additional questions or concerns.
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