Tax on cryptocurrency in India
Amid the rising popularity of crypto in India, more than 20% of the population has invested in crypto. With around 80 million Indians investing in crypto, India stands in the fifth spot in the crypto market.
With a growing crypto market in India, the Indian government imposed a tax on it. The government saw it as a huge opportunity to regulate the market and collect taxes from it.
In Budget 2022, Hon’ble Finance Minister Nirmala Sitaram announced a 30% tax on cryptocurrency in India. The government has not legalized crypto as a currency. But they categorized it under virtual asset class.
30% tax on crypto in India became legal from 1st April 2022. In addition to the 30% tax on crypto traders also need to pay a surcharge and sess. So every penny profit you need to pay 30% of it to the government.
Also read about RBI digital currency
What is a virtual asset?
Virtual digital assets/ crypto assets are decentralized digital assets. They operate via blockchain technology.
The value of Virtual assets has digital representation. They are for digital trading, exchange, or payment. In India, Virtual assets include crypto coins like Bitcoin and Ethereum and other digital assets like NFTs.
What is a 30% tax on crypto in India?
30% Tax on crypto in India is the amount that all the traders, investors, or anyone involved in crypto exchange have to pay to the government in a financial year. In a 30% crypto tax, there is no differentiation between short-term and long-term gains.
The 30% tax rate is valid for every virtual asset profit. The tax rate will be the same irrespective of the nature of the assets. It can be an investment or a business but you will have to pay the same tax rate.
Crypto assets gains are taxed at a rate of 30% plus surcharge and cess. Depending on the amount of taxable income, the surcharge is applied at a rate of 10%, 15%, 25%, or 37% of the tax amount. The cess is applicable at a rate of 4% of the combined tax and surcharge amount.”
In simple words, if you have invested 1000 rupees in crypto and your assets turn into 10,000 you need to pay a flat 30% of the profit.
1% TDS on virtual assets
TDS or Tax deduction at source collect tax from the very source of income . Indian Income Tax Act of 1961 introduced TDS.
The concept of TDS is simple. A person (deductor) who is required to make a payment of a specific nature to another person (deductee) must deduct tax at the source and deposit it into the Central Government’s account.
According to the updated version of Income tax regulations, the government has introduced 1% TDS on all sale transactions of crypto assets.
1% TDS on all sale transactions has been applicable since July 1st, 2022. TDS will subtracted from the total sale amount rather than simply the profits.
So if you earn a profit or a loss on your trade, it will make no difference. Deduction of 1% TDS will be done from the net amount.
How to pay tax on crypto?
The beginning of the financial year 2023–2024 will initiate the implementation of this 30% tax. The tax amount will be deducted from the profit earned via crypto tokens in an entire financial year.
Any income from cryptocurrency transactions will only be taxed at the time of transfer, so long as the asset is held. The holding will not be subject to tax on unrealized profits.
Is Crypto legal in India?
Crypto has not been classified as a legal currency in India. But if you are paying tax on crypto then it is also not illegal. Hence, it is in a grey area which means that it is neither legal nor illegal.
Even though it is not classified yet, the Tax on cryptocurrency in India is still valid and applicable. You can invest as per your preference. But you need to pay a 30% crypto tax to the Indian government.
Which cryptocurrency is legal in India?
As per the Indian regulation currency issued by RBI is the only legal currency in India. Money issued by any other source than RBI is not legal. In Budget 2022 government announced that RBI is all set to launch its digital currency.
RBI will launch RBI digital currency known as the digital rupee. It will be categorized as a legal virtual currency in India with government approval. You will be able to use it for local transactions like buying groceries.
Can we avoid a 30% Tax on crypto in India?
No, you cannot avoid the 30% tax on crypto. The Indian government has introduced these tax measures. They are applicable to every crypto trader and investor or crypto holder.
Avoiding the crypto tax in India will be unlawful. This can cause legal action against you. You might have to face penalties, interest, or even criminal charges.
Also read: How to Invest in cryptocurrency in India
FAQS- Tax on cryptocurrency in India
Can the government track crypto transactions?
Your trading platform already has the registered details of your PAN card. KYC is also mandatory in India before trading. So the government can easily fetch the data and track your transactions.
A penalty of 300% will be charge on the holder if they try to hide transactions from the government. You may even have to face criminal charges.
However, the Indian government has stated that they do not track or store any crypto transaction data of the users.
Is there any Tax on cryptocurrency gifts in India?
In such a case, your friend has to give 30% tax on that gifted crypto. For instance, if you have gifted your friend crypto worth 1lakh then he will have to pay 30% of it as crypto tax.
But what if he returns the gift? This can create a bigger problem for you. Then you also have to pay 30% tax on that returned gift. Even if your friend returns the gift he will still be liable to pay 30% tax.