Is Virtual Digital Assets (VDAs/Crypto) profit taxable in India?

The short answer is yes; any gain/profit from the transfer of crypto is and was always taxable in India.

Last year the Government of India brought specific laws for taxing crypto profit. However, not many people are aware that crypto was taxable under the general income tax laws even before the enactment of specific laws.

As per the Income Tax Act, the term 'virtual digital asset' encompasses any form of data, code, numeral, or token, excluding Indian currency or foreign currency, created through cryptographic methods or other means and can be referred to by any name.

These assets can be electronically transferred, stored, or traded. Additionally, the definition of virtual digital assets includes non-fungible tokens (NFTs) or any similar token, regardless of their name.

To understand NFTs, let us first dive into the concept of fungible assets as compared to non-fungible.

Fungible assets are interchangeable and indistinguishable, meaning that each unit holds the same value and can be exchanged on a like-for-like basis, such as traditional currencies or commodities like gold. On the other hand, non-fungible assets are unique. They cannot be directly exchanged with other assets as they possess distinct characteristics or properties, often associated with individual ownership or proof of authenticity, like collectable items or digital artwork.

Non-fungible tokens (NFTs) are assets converted into tokens using blockchain technology. They are uniquely identified by specific codes and metadata, setting them apart from other tokens. NFTs can be bought, sold and exchanged for money, cryptocurrencies, or other NFTs. In addition, they can represent various digital or physical items, such as artwork, real estate, individual identities, property rights, etc.

Implementing the Finance Act 2022, a new provision called Section 115BBH has been introduced, effective from April 1, 2022, for the financial years beginning April 1, 2022. This section outlines the taxation rules for income generated from the transfer of Virtual Digital Assets (VDA) at a flat rate of 30%. As a result, any income derived from transactions involving Virtual Digital Assets on or after April 1, 2022, will be subject to taxation under Section 115BBH, regardless of any other applicable laws.

Here are the key provisions of Section 115BBH:

Section 115BBH - Tax on income from virtual digital assets:

If an individual's total income includes any income from the transfer of virtual digital assets, the income tax payable will be the total of:
a. Tax calculated at a rate of 30% on the income from the transfer of such virtual digital assets, and
b. No deduction for expenses (except the cost price, if applicable) or allowance or set off of losses will be permitted in the computation of income from VDAs.
Example - Mr Raj works with ABC company limited as an engineer and receives a salary of ₹20,00,000 annually. He additionally received gains from trading in VDAs of ₹3,00,000. Mr Raj will have to pay taxes on his salary income as per individual slab rates; however, the profits from VDAs will be taxable at 30%, amounting to ₹90,000.

Losses incurred from the transfer of virtual digital assets, as computed under, cannot be set off against income computed under any other provision of the Income Tax Act.

As the regulations are not descriptive enough, some tax experts are of the view that, as per the current language of the law, losses from one VDA can be set off against the profits of another VDA. However current income tax return form issued by the department does not allow such a set-off. Furthermore, such losses cannot be carried forward to subsequent assessment years.

Based on the provisions outlined in Section 115BBH, the following key points emerge:

This section introduces a separate tax system for income derived from the transfer of virtual digital assets;

Income from the transfer of virtual digital assets will be calculated separately for taxation purposes;

The income from the transfer of virtual digital assets will be subject to a flat tax rate of 30%;

The tax on the transfer of virtual digital assets will be applicable regardless of whether the income is below the threshold limit or if the taxpayer has incurred a loss; and

Losses from the transfer of virtual digital assets cannot be set off against any other income, including income from the transfer of other virtual digital assets.

When an individual's total income includes income from the transfer of virtual digital assets, the income tax payable will be the total amount of income tax calculated at a rate of 30% on the income from the transfer of virtual digital assets.

Additionally, it will include the amount of income tax that would have been applicable if the individual's total income had been reduced by the income from the transfer of virtual digital assets.

Furthermore, none of the specified heads of income mentioned in Section 14 of the Act is applicable for the computation of income from the transfer of virtual digital assets. Typically, if the income is not taxable under the heads of "Profits and Gains from Business and Profession" or "Capital Gains", it is taxed as "Income from Other Sources".

While the introduction of Section 115BBH in the Income Tax Act on April 1, 2022, marked the explicit inclusion of virtual digital assets (VDA) in the tax regime, the taxation of VDA before this development was not clearly defined.

Individuals engaged in holding, trading and exchanging virtual digital assets fell under the scope of the comprehensive definition of 'income' outlined in Section 2, Clause (24) of the Income Tax Act, 1961. This definition encompasses various types of income, which are subject to taxation. A popular belief existed before 1st April 2022 that crypto was declared illegal; contrary to popular belief, crypto was never declared illegal in India. As per general law, anything not declared illegal is construed as legal.

Various approaches adopted by taxpayers on VDA taxation in the absence of clear guidelines by the government:

If VDA was treated as a business commodity, it was considered taxable under business income.

If VDA was held as a capital asset, the income derived from it was categorised as 'Capital Gains'.

In cases where VDA transactions were occasional, the income was reported under the head of 'Income from Other Sources'.

Since there was no specific tax rate specifically applicable to VDA income, it was subject to either the rate for capital gains or the normal slab rates applicable to the taxpayer.

In summary, even before the separate provisions introduced on April 1, 2022, income from such assets was subject to taxation of virtual digital assets.

Tax Deducted at Source (TDS) is a mechanism employed by tax authorities to ensure the collection of taxes at the source of income generation. It requires the person making the payment to deduct a certain percentage of the payment as tax and remit it to the government on behalf of the recipient. This system helps prevent tax evasion and promotes efficient tax administration. TDS applies to various types of income, such as salaries, interest, dividends & professional fees and acts as an advance payment towards the recipient's overall tax liability.

By the recent guidelines from the Income Tax Department (ITD), a 1% Tax Deducted at Source (TDS) will be imposed on the transfer of crypto assets. This measure aims to ensure the comprehensive recording of transaction details and monitor investments made by Indian investors in crypto assets.

It is essential to clarify that "transfer" refers to any change of ownership, such as a sale or trade, rather than simply transferring assets between your wallets. In simple words, the transfer will include buying and selling on Indian exchanges.

Q1: Mr A, an Indian resident, sold 1 BTC on an Indian exchange. The gross amount for the transaction was ₹1,00,000. What will be the TDS implications?

A: As per Section 194S, the TDS will be applicable at 1% so Mr A will receive ₹99,000 as a final payment.

Q2: Mr A, an Indian resident, purchased 1 BTC on an Indian exchange. The gross amount for the transaction was ₹1,00,000. What will be TDS implications?

Case 1 - If the seller of 1 BTC is an Indian resident, the seller will deduct TDS @1%, and the net amount received by Mr A will be ₹99,000.

Case 2 - If the seller of 1 BTC is not an Indian resident, it depends on the exchange; if the transaction is on an Indian exchange, such exchange will comply with TDS requirements. However, if the exchange is not an Indian exchange, no TDS compliances will be required.

It is to be noted that CBDT has issued a circular that mandates Indian exchanges to comply with all TDS requirements for the sale and purchase of VDAs on such exchanges.

Key points regarding TDS on crypto assets are as follows:

It should be noted that if the consideration for a transaction is payable by a "specified person" and the total value of their crypto trading activities remains below INR 50,000 within a single financial year, no TDS deduction is required. However, in other cases, such a limit is INR 10,000.

A specified person refers to an individual or HUF (Hindu Undivided Family) whose:

Total sales/gross receipts/business income is up to INR 1 Crore, or

Total sales/gross receipts/professional income up to INR 50 Lakhs, or

An individual or HUF who is not having any income under business and profession.

These provisions seek to streamline taxation and reporting processes in the crypto industry, promoting transparency and regulatory compliance among market participants.

When engaging in trading activities on Indian exchanges, the responsibility for fulfilling Tax Deducted at Source (TDS) compliances rests with the exchange itself, thereby relieving individuals of any direct action. However, in the case of peer-to-peer (P2P) transactions and transactions conducted on international exchanges, individuals classified as specified persons must adhere to specific TDS payment and filing requirements.

Consequences of non-compliance with TDS provisions:

Failure to deduct TDS: If a taxpayer fails to deduct TDS where he was supposed to do so, in such case, the Income Tax Department, as per Section 271C, levies a penalty that can go up to the actual TDS amount. Additionally, an interest of 1% per month will be applicable for the period of delay.

Failure to deposit TDS: A taxpayer who fails to deposit the TDS within the specified time limit can face imprisonment for a period of 3 months to 7 years as per section 276B. Additionally, an interest of 1.5% will be applicable for the period of delay.

The taxpayer can be treated as an assessee in default u/s 201 of the Act, due to which an additional penalty will be levied by the authorities.

The taxpayer is responsible for communicating the details of taxable income and losses to the Income Tax Department. These details are communicated to the Income Tax Department in the form of an Income Tax Return. The department has stringent rules regarding the non-filing and late filing of returns.

Interest: If you file your tax return after the due date, you will be charged interest under Section 234A at a rate of 1% per month or part month on the unpaid tax amount.

Late fee: A fee of ₹5,000 under Section 234F must be paid, which is reduced to ₹1,000 if your total income is below ₹5,00,000.

Have you not disclosed your income from VDAs in return for A/Y 21-22 - you still have an option:

The Finance Act of 2022 brought relief for taxpayers who have missed filing their ITR in previous years. As per the newly added provision u/s139(8):

However, under a circumstance where the taxpayer does not resolve to the remedy mentioned above; the Income Tax Department may, on the basis of the nature of holdings, transactions in VDAs and intention of parties, include such earnings under Business Income or Income from Capital Gains.

The Income Tax Department, by virtue of powers vested u/s 147, conclude such additions by initiating re-assessment proceedings under which the department can reassess the incomes of the past ten years subject to certain conditions.

Crypto Tax India: The Ultimate Guide

Learn the top 4 crucial takeaways from the intersection of crypto and tax, including the new Indian government regulations. Find out about the cryptocurrency tax implications, TDS deductions on crypto, ways to minimise tax liability on it, and more.

Top 4 Things To Know from the AMA Session with Avinash Shekhar

In the AMA with Unocoin, Avinash Shekhar, CEO & Founder of TaxNodes spoke about the two most crucial topics - Crypto and Tax. This session also covered how can you become more well-versed in taxation, especially with Indian regulations.

What is the new regulatory process introduced by the Indian Government?

The government introduced a specific tax on cryptocurrencies on April 1st, 2022. It is a common misconception that before April 2022, there was no tax on cryptocurrency which is untrue. In India, if you have an income from any method, whether it is categorised in a special category by the government or not, it is taxable. So if you have made any transactions before 2022 and made any profit on them, that profit is also taxable based on the old income tax law.

From April 2022, the government announced that crypto will be treated as a speculative income and taxed at 30%. Secondly, no set-offs will be allowed. You will have to pay tax on the entire profit you made. It can be an upsetting situation as your taxes can be higher than your profit.

Thirdly, the government said carrying forward losses will also not be allowed. This means if you incurred any loss this year, you cannot carry forward it to next year and adjust with the profit you make in the next year.

Fourthly, the government said that 1% TDS will be deducted from every transaction an individual makes. This regulation brought the most negative impact on the crypto industry. This means whenever you sell any cryptocurrency, you will get the amount after a 1% TDS deduction and you will get that amount refunded after filing your ITR.

Is there a way to minimise tax liability in crypto in India?

As of now, there is only one way to minimise tax liability - HODL. Buy and hodl cryptocurrencies. If you are a trader then it is a different scenario but if you are not a trader, then buy and HODL your cryptocurrencies for a couple of years and then make sure to pay the due tax amount whenever you sell it and make profits from it.

If you have done a P2P transaction in your bank account, will you have to pay tax on it?

Firstly, beware of who the other person is with whom you are doing P2P transactions. These days a lot of online scams are going on, you can’t be sure if the other person’s money is legitimate or not. If you are doing P2P transactions with your friends and family then you are safe, but if not then it is risky.

Secondly, if you are doing the transaction through a crypto exchange then the exchange platform will pay the 1% TDS to the government on your behalf. In this case, you don’t have to fill up any form and submit it to the government. But, if you are doing a P2P transaction on your own, then you are responsible for depositing the 1% TDS and it has a lot of aspects to it like interest, penalties and more. It is a very tedious process.

Thirdly, it is a taxable transaction. If you have made a profit from selling crypto in P2P, then you will have to pay tax on the profit you made.

Are there any exemptions or deductions available on crypto income?

Unfortunately, there are no exemptions or deductions available on crypto income as of now. It is important to note that while making a transaction if TDS has been deducted then the government has the information of the transaction along with your PAN number, so if you think you can skip filing taxes on this income then it is very risky and very likely that you will get a notice from the Income Tax Department. So it is important to always pay your taxes.

We hope this blog was informative and helpful for you. To keep learning more about new laws and regulations on cryptocurrencies in India, keep reading our blogs.

Discover the top 5 mistakes to steer clear of when filing crypto taxes in India. Avoid costly errors and ensure smooth tax compliance with our expert tips. Read now!

5 Common Mistakes to Avoid While Filing Crypto Taxes in India

Virtual Digital Assets (VDAs), or cryptocurrencies, are digital assets that can be used to make payments for goods and services in online marketplaces. Crypto traders aim to make substantial profits by capitalising on the increase in the value of the cryptocurrencies they invest in. However, the high profitability of cryptocurrencies comes with significant risk due to their inherent volatility and the potential for significant capital losses.

Cryptocurrencies function as digital currencies similar to traditional money for purchasing goods and services. Nonetheless, the decentralised nature of cryptocurrencies, operating without intermediaries like banks or central authorities, has sparked controversy since their inception.

Any income from the transfer of Virtual Digital Assets (VDAs) will be subject to a 30% tax rate. This tax applies to assets like cryptocurrencies, tokens, or codes generated through cryptographic methods. No deductions will be allowed except for the acquisition cost, meaning you can't reduce your taxable income by claiming expenses or allowances. In addition, losses from VDA transfers cannot be set off against other income or carried forward to future years. You are responsible for paying the taxes if you receive VDAs as a gift.

The Finance Bill 2022 includes a new section 194S, which requires a TDS of 1% on payments related to the transfer of VDAs. However, in the case of VDA transfers on crypto exchanges, the responsibility for deducting tax is of the exchange itself, as buyers may not have information about the sellers. This can create challenges, particularly in swap transactions involving different VDAs.

Let's dive into five common mistakes to avoid while filing taxes on crypto income in India.

One of the most common mistakes people make when filing taxes for cryptocurrencies in India is not disclosing their transactions. Unlike traditional financial institutions, major banks don't usually offer cryptocurrency services, so most crypto transactions happen on smartphones or mobile platforms without any commissions. This setup creates a gaming-like environment for crypto trading, where investors aim to achieve the highest account balance or "score" by buying and selling frequently.

Additionally, many crypto trading platforms didn't report transactions until recently, contributing to the confusion. However, failing to report these transactions can have serious legal consequences, which may result in penalties and interest on the unreported income. Therefore, it's crucial to accurately report all your cryptocurrency gains and losses to avoid any potential problems.

Ignoring Tax Implications on Crypto Trading

When you trade cryptocurrencies, you are essentially buying and selling assets. Therefore, any profits you make from trading cryptocurrencies are taxable in India. The Indian government taxes all income, regardless of where it is earned. This means that if you make a profit from trading cryptocurrencies, you are required to pay taxes on those profits, even if you are not a resident of India.

If you ignore the tax implications of crypto trading, you could be subject to penalties and interest. The penalties for tax evasion can be severe, and they can even lead to jail time. Additionally, many individuals mistakenly assume that trading between different cryptocurrencies is tax-free. However, in India, crypto-to-crypto trades are considered taxable events. Therefore, you need to calculate the gains or losses for each trade and report them accordingly.

If you hold cryptocurrencies in offshore exchanges or foreign wallets, you must disclose these holdings in your tax return. The income tax department in India has been actively pursuing tax evaders and tax compliance. Failing to report foreign crypto assets can lead to penalties and legal consequences.

An accurate valuation of your cryptocurrency holdings is crucial for tax purposes. In India, you must value your cryptocurrencies in Indian rupees (INR) based on fair market value as of the date of each transaction. Therefore, unreliable or outdated exchange rates could lead to inaccurate tax calculations.  Also, it must be remembered that the GOI doesn't allow set off on losses; the tax is to be paid on the gross profit.

The tax treatment of cryptocurrencies in India can be complex and the rules are subject to change. Therefore, it's advisable to consult a qualified tax professional or Chartered Accountant with expertise in cryptocurrency taxation. They can provide guidance tailored to your specific situation and ensure compliance with the latest regulations.

Full Disclosure of VDAs shall be done in Schedule VDAs

Regarding Virtual Digital Assets (VDAs), it is important to fully disclose them in the appropriate section called "schedule VDAs" while filing your taxes. This means you need to provide detailed information about the VDAs you own or have received. Furthermore, VDAs obtained through mining or airdrops will be subject to taxation based on individual slab rates. This means the tax you owe on these assets will be determined according to the income tax slabs that apply to your overall income.

It's crucial to accurately report and disclose your VDAs and any income generated from mining or airdrops to ensure compliance with tax regulations and avoid potential penalties or legal issues. Moreover, in future, when such receipts of VDAs as airdrops and mining are held as investments, the same shall be considered a capital asset and will be subject to 30% taxation on subsequent sales.

Tax Deducted at Source (TDS) is deducted from crypto transactions to tax traders and investors. TDS applies to both buyers and sellers in crypto-to-crypto transactions. As per Section 194S, TDS at 1% will be applicable on transferring any Virtual Digital Assets (Crypto, NFTs). If you trade on Indian Exchange, TDS will be deducted by the exchanges and will be deposited to the government. On the other hand, if the buyer trades in P2P transactions or on foreign exchanges, the buyer will be liable to deduct TDS and duly deposit it with the government on or before the 7th of the subsequent month.

Filing taxes for crypto transactions is crucial and must be done promptly and accurately. Registered users should seek professional assistance or turn to reliable consulting platforms like TaxNodes to avoid common mistakes. TaxNodes specialises in crypto tax computation and expert-assisted ITR filing. They offer tailored solutions for individuals and businesses in India's ever-changing realm of Virtual Digital Asset (VDA) taxation.

With their advanced software and market analysis, TaxNodes ensures precise reporting and compliance, complemented by a user-friendly interface. Moreover, their expert consultation services provide personalised advice, making TaxNodes a valuable resource for navigating VDA taxation in India effortlessly.

Get a comprehensive understanding of crypto tax in India with this article. Discover ten essential things you need to know, including the government's stance, tax rates, transactions subject to taxation, penalties, exceptions and more. Stay informed and ensure compliance with crypto tax regulations in India.

Ten Things to Know About Tax on Crypto in India

Cryptocurrencies are the next big thing that has been talked about and discussed. People have realised that cryptocurrency is not limited to Bitcoin, and hundreds of others are available to buy and sell. But do you know you have crypto tax? This article is about ten essential things about crypto tax in India.

Everyone who deals in cryptocurrencies must pay a tax similar to the income tax you pay towards your regular income. Below are ten things for you to know and understand.

Does the Indian government levy tax on crypto?

Yes, the Indian government levies tax on cryptocurrency. Before 2022, the government had no stance on cryptocurrencies or taxation policy. However, it was the first time, in 2022, that the Indian government classified cryptocurrencies as a part of Virtual Digital Assets. Post this time, the transactions involving the transfer of VDAs were considered under the purview of the Income Tax Act.

Any gain from trading of VDAs will attract a 30% tax and 1% TDS tax on the transfer of VDAs exceeding Rs.50,000 and in some cases, the amount is Rs. 10,000 in a financial year.

If you earn any other income in crypto, such as from mining or staking, you may even have to pay an income tax upon receipt per your tax slab rate.

It is under Section 2(47A) and governed under Section 115BBH as per the Income Tax Act. This section includes all crypto assets, such as cryptocurrencies, tokens, and NFTs.

You will have to pay a 30% tax on the below transactions:

When you will be trading crypto for other cryptos.

When you are selling crypto for any fiat currency, including Indian rupees.

Additionally, the tax is subjected to individual's specific slab rates.

The following transactions are considered as a part of DeFi income:

Earning new governance, liquidity mining tokens, or reward tokens.

Browse to gain platforms such as bravo or permission.io.

The TDS will be applicable at 1% on all transfers of crypto assets including transfers by converting fiat currency to crypto. However, under the circumstance of crypto-to-crypto trades, both parties will deduct the TDS.

There are two sections under which the crypto investors can be levied penalties, and the same are as below:

Liability for failure to deduct 1% TDS according to Section 271C - If the taxpayer fails to remove the TDS, they must pay the fine equal to the amount due.

Case of failure to pay the TDS under Section 276B - If the taxpayer fails to pay the TDS to the government, they can be imprisoned for three months to 7 years.

Section 115BBH forbids offsetting any crypto losses against crypto gains or any other income or gain. A crypto investor in India cannot claim crypto-related expenses apart from the cost of acquisition.

Any exceptional cases where there is no tax on crypto?

There are only a few cases when you don’t have to pay Tax on your crypto assets:

When you are transferring cryptos between your wallets.

When the crypto gift you received is up to Rs. 50,000 from relatives and friends.

When you receive any amount of crypto gift from your close family member.


Crypto airdrops are similar to receiving a gift and will be taxed based on your tax slab. However, if the value of airdrops is up to Rs. 50,000 in a financial year, you can claim a tax exemption.

Cryptocurrencies are the next big thing, and since the government has recognised them as virtual digital assets, it is essential to understand how they will be taxed and calculated. Read this blog to learn more about taxation on Bitcoin and other cryptocurrencies in India.

Can PMLA compliance be the key to wider adoption of cryptocurrency? Our expert analysis delves into the impact of PMLA regulations on the cryptocurrency market.

Can PMLA compliance be the key to wider adoption of cryptocurrency?

The Ministry of Finance has just issued a notification that will help the crypto industry march towards the mainstream. Effective immediately, cryptocurrency and virtual digital assets (VDA) will fall under the purview of the Prevention of Money Laundering Act (PMLA) 2002. This means that any wrongdoing or fraud related to crypto and VDA will be scrutinized by the Enforcement Directorate (ED).

This move is a significant step forward in regulating the crypto industry and combatting the negative stigma associated with it. With the introduction of new regulations, crypto investors can have peace of mind knowing that their investments are protected from fraudulent activities. But what exactly does this mean for the crypto industry? Let’s find out! 

What is PMLA and what significant impact will the new regulations have on the crypto industry?

The Prevention of Money Laundering Act (PMLA) of 2002 is a robust law enacted by the Indian government to combat money laundering, terrorism financing, and other financial crimes. This legislation was formulated to put a stop to the exploitation of the financial system by criminals to launder their illicit gains. 

The PMLA mandates strict penalties and punishments for individuals and organizations found guilty of money laundering. Have you ever wondered how money launderers move their illicit money? The PMLA provides a comprehensive framework to prevent such illegal activities and promotes a transparent financial system, thereby safeguarding the integrity of our nation.

Now, the question is what impact will the new regulations bring on the crypto industry?

For starters, it will increase transparency and accountability in the sector, which has been a concern for many. The regulations will also provide a level of assurance for potential investors who have been hesitant to invest in crypto due to the lack of regulations.

While some may argue that this move will stifle innovation and growth in the crypto industry, it's important to remember that regulations are necessary for any industry to thrive. The introduction of PMLA regulations for crypto and VDA is a step towards legitimizing the industry and bringing it into the mainstream.

What is the prime objective behind this introduction of new rules?

The Indian government's recent move to mandate KYC, anti-money laundering regulations and due diligence for entities dealing in cryptocurrency is a step in the right direction. The Finance Ministry's notification means that cryptocurrency exchanges will now have to follow the same regulations that apply to banking and other financial entities under the PMLA. This move not only brings India to par with the rest of the world but also instils a sense of security among the public engaged in the crypto exchange.

But why is this move necessary? Well, the strict tax regulations imposed on Indian cryptocurrency investors have severely restricted commerce between Indian cryptocurrency exchanges. This has led to the majority of Indian cryptocurrency investors switching to foreign cryptocurrency exchanges, which is not a desirable outcome for the Indian economy.

Moreover, the RBI deputy governor's comparison of cryptocurrencies to Ponzi schemes highlights the need for regulations to protect investors. It is essential to prevent any fraudulent activities in the crypto ecosystem, and the PMLA regulations provide the necessary framework for the same.

Final Thoughts: Is this going to be a positive step towards the Future of Crypto?

The Indian government's decision to bring crypto businesses under the ambit of the PMLA is a commendable move towards establishing a well-regulated environment for the industry. This step promotes transparency and accountability, while also aiding in identifying and curbing the activities of bad actors within the industry. Furthermore, it strengthens the collective efforts of the industry to prevent the misuse of crypto through money laundering and other illegal activities.

Isn't it reassuring to see the Indian government recognizing the importance of clear regulations for the crypto industry? By including crypto businesses under the PMLA, the Indian government has taken a positive step towards establishing a robust regulatory framework that fosters growth, security, and accountability.

This move is crucial as it enhances the legitimacy of the crypto industry in the eyes of the public. It assures investors that their interests are protected, and they can invest in the industry with confidence. The decision also reflects the global trend of recognizing the significance of clear regulations and protecting the interests of crypto investors.

Overall, the decision to bring crypto businesses under the PMLA demonstrates the government's commitment to encouraging innovation and promoting a stable financial sector. This positive step will undoubtedly help the sector as a whole, leading to its sustained growth and development.

Explore the 5 essential tax implications of owning and trading cryptocurrencies in India. Get a thorough understanding of the current laws and regulations with this comprehensive guide. Stay informed and stay ahead in the digital asset market.

5 Things you should know about Bitcoin and crypto tax

Cryptocurrency has been influencing the financial world, and it's no different in India. With the rise of digital currencies, there's a growing interest in understanding how these assets are taxed. But with complex regulations and a rapidly evolving crypto landscape, staying up-to-date on the latest developments can be challenging. 

As a crypto enthusiast or investor, it's crucial to understand the tax implications on your digital assets. Not only does this help you stay compliant with the law, but it ensures you're making the most of your investment by managing the tax burden. Whether you're a seasoned crypto trader or just starting, this article will help you navigate India's complex world of cryptocurrency taxes. 

By the end of this article, you'll have a clear understanding of cryptocurrency taxes and be better equipped to manage your crypto investments. So, let's dive in!

Overview of Cryptocurrency Taxes in India:

The 2022 Budget introduced Section 115BBH to tax digital assets and cryptocurrencies. According to the section, a 30% tax rate (excluding the 4% cess and surcharge) is imposed on all cryptocurrency transactions. This rate is equivalent to the highest income tax bracket in India. It applies to commercial traders, private investors, and anyone who transfers crypto assets during the fiscal year.

It is important to note that the 30% tax rate applies regardless of the nature of the income, be it from business or investment income, and there is no differentiation between short-term and long-term gains, as is the case with stocks or bonds.

When it comes to calculating crypto taxes, there are several vital points to consider:

Crypto losses cannot be subtracted from gains.

Offsets or losses from other sources of income (business, salary, or house property) cannot be included.

Carry-forwarding crypto losses to future years for offsetting against crypto income is prohibited.

The standard for crypto taxation in India:

In the Union Budget 2022, Indian Finance Minister Nirmala Sitharaman declared that cryptocurrencies would be classified as virtual digital assets for tax purposes. 

Here's a breakdown of the tax implications for various crypto-related activities:

According to section 115BBH of the Finance Bill, the following activities involving virtual digital assets (VDAs) are subject to taxation:

Converting VDAs into Indian Rupees or any other fiat currency

Converting one VDA to another (such as crypto-to-crypto trading, including stablecoins)

Paying for goods and services using a virtual digital asset

Profits from these transactions are taxed at a rate of 30%, with an additional 1% TDS imposed for transactions above 10,000 INR. However, if an individual or HUF is a specified person,i.e. if they do not have any income from Business or Profession OR if total receipts do not exceed INR 1 crore in case of a business or INR 50 lakh in case of professional income, then no TDS u/s 194S is payable for transactions upto INR 50,000.

Other crypto-related activities, such as:

These transactions are viewed as income and taxed according to the recipient's income tax rate. However, if the recipient holds the assets and sells them later, they are liable to pay a 30% tax on any appreciation in the market value of the investment.

In India, a 30% tax on VDA (Virtual Digital Assets) transactions is imposed, and a TDS (Tax Deducted at Source) of 1% is also levied. Introducing TDS on cryptocurrency is to monitor and record investments in crypto assets made by Indian investors.

It is important to note that TDS is imposed on trades, spends, or sales, not on transferring assets from one wallet to another. Here are some critical points regarding TDS on cryptocurrency assets:

When trading through Indian exchanges, TDS will be deducted directly from transactions and submitted to the Government.

When transacting through P2P platforms, the buyer is responsible for deducting TDS.

In the case of crypto-to-crypto trades, both the buyer and seller are required to pay 1% TDS.

115BBH prohibits investors from offsetting any losses against crypto gains. Indian crypto investors are not allowed to claim any cryptocurrency-related expenses except the cost of acquisition or buy price.

Crypto Activities Exempt from Taxes in India:

Are you looking for ways to manage your tax liabilities from cryptocurrencies? There are specific scenarios where you are exempt from paying taxes on cryptocurrency, such as:

Transferring crypto from one wallet to another

Receiving a gift of cryptocurrency worth up to Rs. 50,000 from close family members. This amount can only be exempt from crypto taxes and cannot exceed this limit. (Subsequently, on selling the gift received, tax under Section 115BBH is payable)

The first step to calculating taxes on cryptocurrency transactions is to determine the capital gains. Capital gains are profits from selling or disposing of a capital asset, in this case, cryptocurrency. If an individual bought cryptocurrency worth INR 3,00,000 and sold it for INR 5,00,000, their capital gain would be INR 2,00,000. This amount is multiplied by 30% to calculate the taxable amount, which comes out to be INR 60,000 (excluding surcharge and cess). The individual will be liable to pay INR 60,000 plus a 4% cess and surcharge as the tax on their crypto income in that financial year.

It's important to note that any income derived from cryptocurrency transactions is taxed only at the time of transfer of assets. Therefore, holding onto cryptocurrency assets does not make unrealized gains taxable. In addition, the Government does not allow any expenses, other than the cost of acquisition (purchase price), to be deducted as expenses from the profit. This includes platform fees, brokerage fees, and internet charges.

Starting July 1, 2022, a 1% TDS (Tax Deductible at Source) was introduced on all crypto transactions under section 194S of the Income Tax Act. This means that for a crypto purchase worth INR 10,000, INR 100 will have to be paid as TDS, and the remaining INR 9,900 will be delivered to the seller. However, some crypto exchanges may automatically deduct the TDS and deposit it to the Government, subject to special conditions.

It's essential to remember that TDS will be imposed on all crypto transactions, including Crypto-to-Crypto Transactions. The Indian Government is taking steps to discourage short-term crypto transactions but has not prohibited cryptocurrency trade. 

The tax measures taken by the Indian Government are comprehensive and clear about the extent and scope of taxes to be paid. Hence there are almost no routes to evade taxes on cryptocurrencies. Consequently, all the crypto exchanges are working towards establishing platforms for compliance with the Government's directives. 

Therefore, we recommend you keep detailed records of all cryptocurrency transactions and try to find professional tax advice. Seeking the guidance of a tax professional can help you navigate the legal requirements and ensure that you abide by the laws.

Discover the latest tax laws and regulations for cryptocurrencies in 2023 for various countries and learn how it may affect your digital assets.

How do different countries tax cryptocurrencies in 2023?

Cryptocurrency has been a hot topic in the financial world for the past few years. From making headlines to capturing people's minds worldwide, virtual digital assets, NFTs, and cryptocurrency have been on the rise. However, the taxation of VDAs and cryptocurrencies is a concern for investors due to the restrictive approaches of governments worldwide.

India is one of the latest countries to make a significant decision regarding the taxation of cryptocurrencies with the introduction of section 115BBH. But it's not just India; other countries such as Singapore, and the USA also impose crypto taxes. 

How are cryptocurrencies taxed across the globe?

Here is a list of different taxation rules on cryptocurrency in other countries:

The IRS considers cryptocurrency a capital asset in the United States, meaning that investors must pay taxes on any gains from selling their crypto holdings. So, for example, if you sell your crypto within a year, you'll be subject to short-term capital gains tax, ranging from 0-37%, depending on your income. On the other hand, if you hold your crypto investment for over a year, you'll be taxed at a lower rate of 0-15% or 20% at most, depending on your marital status and income.

It's important to note that you won't have to pay any taxes on your crypto if you hold it without selling or exchanging it for a gain. And, if you incur losses from selling crypto, you can offset up to $3000 of them against your total tax bill.

In the United Kingdom, the taxation of Bitcoin and other cryptocurrencies falls under either Capital Gains Tax or Income Tax, depending on the nature of the transaction. For example, if you earn an income through cryptocurrency, you will be subject to Income Tax. On the other hand, if you make a capital gain, you will be liable for Capital Gains Tax.

It's worth noting that the UK has a unified Capital Gains Tax rate, unlike some countries that differentiate between short-term and long-term gains. So the amount of tax you pay on your capital gains will depend on your income bracket.

Please refer to the table here for a detailed understanding:

The Canadian government views cryptocurrencies, such as Bitcoin, as commodities rather than fiat currency. As a result, the taxation policies for cryptocurrencies in Canada are similar to those in the United Kingdom. For instance, the individual must pay Income Tax if the cryptocurrency is taxed as income. On the other hand, if it is taxed as a capital gain, the individual will only be required to pay Capital Gains Tax on half of the profit from cryptocurrency transactions.

The following table provides a breakdown of the percentage of taxes required to be paid on cryptocurrency transactions in Canada:

The Australian Taxation Office (ATO) views cryptocurrency as an asset, attracting both Capital Gains Tax (CGT) and Income Tax. Therefore, if you have bought, sold, or earned any income through cryptocurrency transactions, you must be aware that you must file an Income Tax Return on your overall income.

The ATO has a comprehensive system for tracking all cryptocurrency transactions. When you sign up with an Australian wallet or exchange, your Know Your Customer (KYC) data is automatically registered with the ATO. Like in Canada, the Australian government views all cryptocurrencies as property and classifies them under the asset class, thus imposing Capital Gains Tax.

However, it is essential to note that CGT will only be imposed on your cryptocurrency holdings if you dispose of them. This refers to buying, selling, exchanging, gifting, or using cryptocurrency to purchase goods or services. If you hold onto your cryptocurrency and are subject to Australian taxes, you will pay 50% less tax.

The Netherlands's taxation system is distinct from other countries and operates on a wealth tax basis rather than a capital gains tax. At the beginning of each tax year, the government presumes an interest amount on the value of assets, which is calculated by offsetting all liabilities.

If your total assets include crypto worth more than 50,000 EUR, you will be subject to a 31% wealth tax. By understanding the tax policies in different countries, crypto investors and traders can make informed decisions about their investments.

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