Crypto Tax in India: A Complete Handbook for 2023
Sun Feb 05 2023
What are Virtual Digital Assets?
As per the Finance Bill 2022, any information or code or number or token (not being Indian currency or foreign currency), generated through cryptographic means or otherwise, by whatever name called, providing a digital representation of value exchanged with or without consideration, with the promise or representation of having inherent value, or functions as a store of value or a unit of account including its use in any financial transaction or investment, but not limited to investment scheme; and can be transferred, stored or traded electronically
These Virtual Digital Assets represent a Store of Value and cannot be used to buy Goods and Services
Any other digital asset, as the Central Government may, notification in Official Gazette specify: Provided that the Central Government may, by notification in the Official Gazette, exclude any digital asset from the definition of a virtual digital asset subject to such conditions as may be specified therein
Taxes on Virtual Digital Assets
- Income or Profits made from VDAs are taxable at a flat rate of 30%.
- The Flat rate of 30% applies irrespective of
1. Holding period
2. Individual Tax Bracket
3. The nature of the transaction
4. Whether you are a private investor or a commercial investor
- VDAs are taxed under “Income from other sources” similar to lottery winnings, and income from interest on FDs
Are Cryptos taxable?
Cryptos fall under the definition of Virtual Digital Assets as per the Finance Bill 2022. Income or Profits generated from the Sale of Cryptos are taxable at a Flat rate of 30% without exception
Are NFTs taxable?
Non Fungible tokens ( NFTs) are included in the definition of Virtual Digital Assets as per the Finance Bill of 2022. Income or Profits generated from the Sale of NFTs are taxable at a Flat rate of 30% without exception.
Are Stablecoins Taxable?
The Finance Bill has not specifically mentioned Stablecoins. Since Stablecoins are also based on Cryptography, they would have to meet the criteria of VDAs. However, the Central Government may choose to notify or denotify them as mentioned above.
Are tokens Taxable?
The Finance Bill has not specifically mentioned Tokens. Since Tokens are also based on Cryptography, they would have to meet the criteria of VDAs. However, the Central Government may choose to notify or denotify them as mentioned above.
More details on different Crypto income sources
The Finance Bill 2022 has not mentioned any details about Crypto mining, staking, lending, and borrowing. It is advisable to speak to an expert in such matters. Income earned through interest from such scenarios can be included under “ Income from other sources” in your IT returns. The Applicable tax rates, in this case, would be the slab rates as per taxpayer income. However, it is safer to keep these earnings under the VDA bracket.
TDS on Crypto
Tax deduction at source (“TDS”) will be applicable on the transfer of ‘Virtual Digital Assets’, including crypto assets and NFTs, from July 1st, 2022, as per Section 194S of the Income Tax Act.
One of two slabs of TDS applies to a crypto asset transfer
(a) 1% - if the receiver has filed Income Tax Returns, or
(b) 5% - if the receiver is a specified person under Section 206AB of the Income Tax Act. In either case, the TDS is on the net transaction value.
The deducted TDS amount will reflect in your Form 26AS within the prescribed timeline of TDS return filing. This tax can be claimed from the Income Tax department while filing your yearly income tax return.
When is TDS applicable?
- INR-to-Crypto (F2C) Buy Orders - No TDS applicable
- Crypto-to-INR (C2F) Sell Orders - 1% TDS applicable on net order value
- Crypto-to-Crypto (C2C) Buy & Sell Orders - 1% TDS applicable on net order value
Illustration: Let us explain how a TDS deduction happens on Zebpay through an example
Your order information will appear as follows if you make a Sell order for 1 BTC at INR 20,00,000:
- Order value = INR 20,00,000
- Transaction fees* (0.25% of 20,00,000) = INR 5,000
- TDS applicable (1% of 19,95,000) = INR 19,950
- Final Calculation (Actual receivable amount) = INR 20,00,000 - (5,000+19,950) = 1,975,050
*Transaction Fees may vary depending on the tier you belong to.
TDS deductions made in respect of your transfers will be specified in the ZebPay app.
Amendments in the Budget 2023:
With a recent amendment during the budget session on 1st February 2023, the Government has also introduced penalties for missing out on the TDS. Such as:
- A penalty for non-payment of crypto TDS or hiding the information: Equal to unpaid TDS
- A potential jail sentence can range from 3 months to 7 years on missing out or hiding the TDS
- Interest at 15% p.a for late payment of the TDS
How to calculate your Crypto Taxes?
*The examples shown are for illustrative purposes only
Taxes in case of gains:
Taxes in case of losses:
Taxes when there is a combination of Profit and loss:
Can Capital losses be offset by Capital gains?
No. As shown in the example in the previous section( Table 3.0), Capital losses cannot be offset by Capital gains. While there is no tax applicable to losses on the sale of Crypto, profits are taxable at a flat rate of 30%.
Are there any Crypto transactions that are not taxable?
Transfer of Crypto assets from one wallet to another of the same person is not Taxable
HODLing is not taxable. HODLing is when an investor holds a Crypto asset or stores a Crypto asset in his/her wallet ( wallet could be an exchange wallet or a personal wallet) without selling it.
Can there be a carry forward of loss/profit from one financial year to the next?
The loss on Crypto in one financial year cannot be set off against a profit made in another year. Taxes applicable on Crypto earnings are payable every year.
What if I receive Crypto as a Gift?
The Income-tax Act has a special provision for taxation on movable and immovable gifts. Gifts from relatives are exempted as per the IT Act irrespective of the value. People who receive Crypto as a gift must do their due diligence to see who fits the definition of “ relatives” as per the IT Act. Any gift which exceeds the amount of INR 50,000 from a non-relative will be taxable at the hands of the recipient based on the occasion on which the gift is being received.
What about earnings from Play to Earn or Move to Earn games?
Earnings through games and airdrops can be considered Gifts as per the Income-tax Act. The rules mentioned in the previous paragraph apply in the case of Gifts.
What about P2P transfers?
There is no clear definition of how P2P transfers will be taxed at the moment. But, it is safe to assume that a flat tax rate of 30% is applicable when any Crypto received through P2P is sold and profits are made from the sale
I am not 18 years old yet and I own Crypto, what should I do in this case?
Crypto trading is not restricted to majors. Anyone who has a PAN card and books profits from Crypto assets is liable to pay all taxes without exception. Investors and traders are required to know all tax compliance laws.
Can I accept Crypto as a medium of exchange for goods and services?
The Govt has clarified that Virtual Digital Assets are not a form of currency. As per the mandate, Crypto assets cannot be used as a medium of exchange for goods and services. They can only be used as an asset class.
Will there be any applicable taxes if I transfer Crypto between two wallets I own?
Transfer of Crypto assets from one wallet to another of the same person is not taxable
How to report Crypto earnings in your ITR?
- All gains made on Crypto gains must be reported in the ITR
- Gains must be reported under “ Income from other sources” in the ITR form
- A Flat 30% tax will be applicable on gains made on all Virtual Digital Assets
- Don’t forget to claim the TDS deducted
- New taxation rules are to be applied from the Financial year 2022-23
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