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Cryptocurrency Taxation in India: What You Need to Know
The Indian Income Tax Department has not issued detailed instructions on taxing cryptocurrencies. However, the Income Tax Act incorporates critical sections—115BBH and 194S—that regulate taxation for Virtual Digital Assets (VDAs), which include cryptocurrencies, NFTs, and tokens. Gains from VDAs attract a flat 30% tax rate, a 1% Tax Deducted at Source (TDS), and possibly income tax based on individual slab rates for non-trading earnings.
This guide provides an overview of cryptocurrency taxation in India for 2024, including key updates like the 1% TDS, filing Schedule VDA in your Income Tax Return (ITR), and tax implications for various crypto-related activities.
What is Cryptocurrency?
Cryptocurrencies are digital currencies secured by cryptography, ensuring they are resistant to counterfeiting. Unlike traditional currencies issued by central authorities, cryptocurrencies function on decentralized blockchain networks. Bitcoin is the most recognized cryptocurrency, but alternatives like Ethereum, Litecoin, and Ripple (altcoins) also exist. Cryptocurrencies serve purposes like peer-to-peer transactions, remittances, and investment opportunities, traded on exchanges or stored in digital wallets.
Is Cryptocurrency Taxed in India?
Yes, cryptocurrencies are taxable in India. Recognized as VDAs in Budget 2022, a specific tax framework governs their treatment.
Crypto Tax Rates in India
Trading Profits: 30% tax on gains from trading or selling crypto assets.
1% TDS: Applicable to transactions exceeding ₹50,000 (₹10,000 for certain cases) per financial year.
Other Income: Earnings from mining, staking, or airdrops may attract taxes based on individual slab rates.
2024 Updates on Crypto Taxes
Income Tax Return Filing: The ITR for FY 2023-24 includes Schedule VDA for reporting crypto-related gains. Filing deadlines are July 31, 2024, for regular returns and December 31, 2024, for belated returns.
Penalties for Non-Compliance: Stricter penalties now exist for failing to deduct or deposit TDS, including fines and imprisonment
Tax Treatment for Various Crypto Transactions
Transaction Type | Tax Treatment |
Buying crypto | 1% TDS (deducted by Indian exchanges) |
Selling crypto | 30% tax on gains |
Trading crypto for crypto | 30% tax on gains |
Spending crypto | 30% tax on gains |
Holding crypto | No tax |
Transferring wallets | No tax |
Airdrops or mining | Income tax on receipt, 30% tax on gains later |
Tax Guide for DeFi Transactions
DeFi income (e.g., staking, liquidity mining) is taxed per general VDA rules. Earnings are taxed at slab rates when received, and a 30% tax applies on gains when assets are sold.
Claiming TDS Credit
Investors can claim TDS credit to lower their overall tax burden when filing returns. Ensure compliance with Form 26QE (specified persons) or Form 26Q (others) for smooth TDS deduction processes.
How to Calculate Crypto Taxes
Determine your cost basis—purchase price or market value when acquired.
Calculate profits—subtract the cost basis from the sale price or fair market value on the transaction date.
Conclusion
Understanding and adhering to India’s crypto tax regulations is essential for avoiding penalties and ensuring compliance. Consult with experts to manage your crypto taxes effectively.
For professional assistance with your crypto tax planning, contact PGA & Co., your trusted partner for tax advisory services.
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