This article provides a comprehensive guide to help Indian taxpayers understand and file their cryptocurrency taxes for the financial year 2022-23. It covers everything from the tax implications of buying and selling crypto to how to calculate your gains and losses and includes tips to ensure you remain tax compliant.

Crypto Tax in India: A Complete Handbook for 2023

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.

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

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.

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. 

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.

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.

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. 

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:

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.

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

*The examples shown are for illustrative purposes only

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.

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.

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 

New taxation rules are to be applied from the Financial year 2022-23

The world of cryptocurrency is ever-evolving, and with it, the investment opportunities it presents. The recent buzz around Ether ETFs (Exchange-Traded Funds) has captured the attention of investors and regulators alike. Unlike its predecessor, Bitcoin, which has seen the green light for spot ETFs, Ether is navigating through more complex regulatory waters, raising intriguing questions about its future in the investment landscape.

The Securities and Exchange Commission, United States of America, (SEC) is currently reviewing applications for spot Ether ETFs. This comes on the heels of the approval of Bitcoin ETFs, which significantly boosted Bitcoin's value. However, Ether ETFs face unique challenges that set them apart, stirring debate among experts and regulators.

One of the primary concerns revolves around the practice of staking. Staking involves putting up Ether tokens as collateral to support the operation of the Ethereum blockchain, in exchange for rewards. This mechanism is a double-edged sword; while it underpins the Ethereum network's functionality, it also introduces regulatory complexities that the SEC is closely examining. The SEC's crackdown on staking services by firms like Kraken and Coinbase for not adhering to securities laws highlights the regulatory hurdles associated with staking-related activities.

Another critical factor is the potential classification of Ether as a security, rather than a commodity like Bitcoin. This distinction is crucial, as it would subject Ether and related investment products to a different set of regulations and scrutiny. The ongoing investigation into the Ethereum Foundation by the SEC further underscores the regulatory uncertainty surrounding Ether.

Despite these challenges, some insiders remain optimistic about the prospects of Ether ETFs. They argue that the SEC has no solid grounds to deny the applications, especially considering the regulator's previous acknowledgment of Ether's status as a commodity. Yet, the path to approval is fraught with hurdles, reflecting the broader challenges of integrating cryptocurrency into mainstream financial markets.

The debate over Ether ETFs underscores a critical juncture in the evolution of cryptocurrency as a legitimate and accessible investment option. As the SEC weighs its decision, the outcome will not only shape the future of Ether ETFs but also signal the regulatory direction for the broader cryptocurrency market. For investors and enthusiasts alike, the unfolding saga of Ether ETFs is a watershed moment, reflecting the growing pains of an industry at the frontier of financial innovation.

Ether ETFs: Charting the Regulatory Waters of Cryptocurrency Investments

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Any technical malfunction, failure, error, omission, interruption, deletion, defect, delay in operation or communications line failure, regardless of cause, with regard to any equipment, systems, networks, lines, satellites, servers, cameras, computers or providers utilised in any aspect of the operation of the program.

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TaxNodes is a crypto tax platform that aims to simplify the tax computing process in India. The platform was founded by seasoned finance executive & former ZebPay CEO Avinash Shekhar. TaxNodes was launched with the mission to transform the way crypto taxation and ITR filing are handled for retail investors and exchanges.

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The sale will be valid from July 16th to July 25th, 2023, unless otherwise specified.

Discounts, offers, and rewards provided during the sale are subject to availability and may vary based on individual eligibility and participation.

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The Spin the Wheel of Fortune activity offers exclusive prizes, and participants will be entitled to the prize won during the spin. Prizes are subject to availability and cannot be exchanged or transferred.

Referral rewards will be granted to users who refer their friends to TaxNodes and successfully onboard them as new users by subscribing to services offered by TaxNodes.

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Discover the best approach to tackle income tax notices: Should you hire a professional or handle it yourself? Get expert insights and guidance in our latest blog to navigate tax challenges effectively.

Dealing with Income Tax Notices: Hire a Professional or Respond Yourself?

Receiving an income tax notice can be a stressful experience. Taxpayers sometimes receive income tax notices, which can be unsettling, but it doesn't necessarily mean you've done something wrong. Even a minor mistake in your tax return could trigger such a notice from the tax department. The important thing is not to panic and address the situation calmly and wisely. In this blog, we'll explore whether you should handle the notice yourself or seek the assistance of a tax professional.

There are a few factors to consider when making this decision. First, you need to understand the reason for the notice. If it is a routine notice, such as a confirmation that your return was received, you may be able to handle it yourself. However, if the notice asks for more information or requests an audit or assessment, you should consider hiring a professional or platform like TaxNodes. 

Another factor to consider is your level of knowledge about income tax law. If you are unfamiliar with the tax code, you may make mistakes if you try to respond to the notice yourself. It could lead to additional penalties or interest charges.

Finally, it would be best to consider how much time and effort you will put into responding to the notice. If you are short on time or do not want to deal with the hassle, you may want to hire a professional.

Read more: Common Mistakes that attract Income Tax Notices and how to avoid them?

There are several benefits to hiring a tax professional to help you respond to an income tax notice. First, they will have the knowledge and experience to help you understand the notice and respond appropriately. Second, they can help you gather the necessary documentation and prepare your response. Third, they can represent you in an audit if required.

Of course, there are also some costs associated with hiring a tax professional. However, the cost of hiring a professional may be offset by the peace of mind that comes with knowing that a qualified professional is handling your response.

If you decide to respond to the notice yourself, there are a few things you should keep in mind. First, you need to make sure that you understand the notice and the reason for it. Second, you must gather all the necessary documentation to support your response. Third, you need to write a concise response addressing the concerns raised in the notice.

If you are unsure how to respond to the notice, contact the Income Tax Department for assistance. They will be able to provide you with more information about the notice and help you understand your options.

Whether you should hire a tax professional or respond to the notice depends on your circumstances; if you are unfamiliar with the tax code or do not have the time to deal with the notice, you should hire a platform like TaxNodes. We provide you with a one-stop solution for all your income tax queries; we will assist you from filling your ITR to responding to your IT notices. 

Here are some additional tips for responding to an income tax notice:

•	Be timely. Respond to the notice within the timeframe specified.

•	Be accurate. Make sure that your response is accurate and complete.

•	Be clear. Write a clear and concise answer that is easy to understand.

•	Be respectful. Be respectful of the Income Tax Department and its officials.

Discover the top Income Tax notice triggers and learn expert strategies to steer clear of them in our latest blog. Avoid costly mistakes with our essential tax tips.

Common Mistakes that attract Income Tax Notices and how to avoid them?

Receiving an income tax notice from the Income Tax office is a situation that most taxpayers dread. Even if you have diligently filed your tax return, there are several reasons why you might still end up with a notice. In this article, we will explore the common mistakes that often attract income tax notices and provide detailed guidance on avoiding them while complying with the Indian Income Tax Act 1961.

Scrutiny assessment is a process where the tax department carefully examines the tax returns filed by taxpayers. If the department has a reason to believe that the information provided is incorrect or incomplete, the case is selected for scrutiny assessment. The taxpayer receives a notice from the department and must take appropriate action as communicated.

The Reasons behind Selection of Cases for Scrutiny

Scrutiny assessments can be of two types: manual and compulsory. While manual selection for scrutiny is often avoidable with careful attention, compulsory selection cannot be prevented.

Let's delve into some of the common reasons for the selection of cases for scrutiny and explore ways to avoid them effectively:

Reason 1: Non-filing of Income Tax Return (ITR)

One of the primary reasons for receiving an income tax notice is the non-filing of ITR. If your gross income exceeds the exempted limit (INR 2,50,000 for individuals below the age of 60), filing an annual income tax return within the stipulated time frame is mandatory. For resident Indians who own foreign assets or have signing authority in a foreign bank account, filing a tax return is obligatory, irrespective of their income. Even if your employer has already deducted TDS from your pay, you must still file your return to avoid attracting a notice.

How to avoid: Ensure prompt payment of advance taxes and file your returns well before the due date.

Discrepancies between the TDS shown in your return and what is reported on the Traces website can raise red flags and lead to an income tax notice.

How to avoid: Request your employer or any entity deducting TDS from your income to deposit the amount with the government treasury and file TDS returns on time. Always reconcile the actual TDS deducted from your income with your Tax Credit Statement (Form 26AS) and promptly report any discrepancies.

Reason 3: Non-disclosure of Other Incomes

One of the most common mistakes is failing to report all earned incomes in the tax return. Many individuals overlook interest income from savings accounts, fixed deposits, and recurring deposits.

Cases where TDS is deducted at a lower rate than the taxpayer's applicable tax slab can attract scrutiny for non-disclosure or an attempt to minimize tax liability.

How to avoid: Request your bank to provide an interest statement for all your deposits at the year-end. Report all income from any source in your tax return, even if the amount is tax-exempt.

Note: Concealment of income can result in penalties of up to 300% of the tax payable.

Reason 4: Unnatural or High-Value Transactions

Engaging in transactions with significantly higher values than the income declared in your tax return may trigger an income tax notice. For instance, a salaried individual earning Rs. 4,00,000 but depositing more than Rs. 10,00,000 in their bank account may attract attention. All high-value transactions are reported directly to the tax department through annual information returns filed by institutions like brokers and banks.

How to avoid: Ensure you report every transaction, including losses such as those incurred in share trading, to the tax department to avoid notice.

Filing an inaccurate income tax return due to ignorance or lack of knowledge can lead to notices from the tax department. This could be caused by using the wrong ITR form, omitting mandatory information, or other errors.

How to avoid: Prepare all your documents before filing your ITR and seek assistance from a tax expert if you face any challenges in filing your return.

Read more: How to respond to an Income Tax Notice?

Receiving an income tax notice can be avoided by ensuring accurate and timely filing of income tax returns, meticulous record-keeping, and transparent reporting of all incomes and transactions. Compliance with the provisions of the Indian Income Tax Act 1961 and being proactive in rectifying any mistakes or discrepancies can help taxpayers avoid unwanted scrutiny and maintain a smooth tax journey. By staying informed and vigilant, taxpayers can navigate the complexities of the tax system and prevent potential issues that may arise from common mistakes. Remember, diligent compliance and seeking professional guidance whenever necessary is the key to avoiding income tax notices.

Discover the transformative power of Bitcoin ETFs and their profound influence on the cryptocurrency investment landscape. Dive into our insightful blog to explore how these innovative financial instruments unleash the untapped potential of Bitcoin, shaping the future of digital assets and redefining investment opportunities. Uncover the implications, benefits and risks associated with Bitcoin ETFs and gain a comprehensive understanding of their impact on the ever-evolving world of crypto investing.

Unleashing the Potential: Bitcoin ETFs and Their Impact on the Crypto Investment Landscape

Cryptocurrencies have been making waves in the financial world, and Bitcoin, the pioneer of digital currencies, continues to capture the attention of investors worldwide. In recent news, the long-anticipated arrival of Bitcoin exchange-traded funds (ETFs) has become a topic of great interest. This blog will delve into the latest updates surrounding Bitcoin ETFs, exploring their potential impact on the crypto investment landscape.

In the world of investing, think of exchange-traded funds (ETFs) are like the superheroes of the financial market. They combine the best qualities of both the stock market and mutual funds to offer investors a robust and accessible investment tool. Imagine a team of financial experts pooling their knowledge and resources to create a diversified portfolio you can buy a share of, just like a stock. That's exactly what an ETF is!

Think of ETFs as a basket filled with different investments, such as stocks, bonds or commodities. When you buy shares of an ETF, you're essentially buying a piece of that basket. This diversification helps spread your risk and provides exposure to a wide range of assets, giving you access to sectors or markets that would be difficult to invest in individually.

ETFs are even more exciting because they trade on stock exchanges, which means you can buy or sell them throughout the trading day, just like when you would with a stock. This liquidity and flexibility make ETFs a convenient and cost-effective way for new and experienced investors to build a well-rounded portfolio. So whether you are a financial novice or an investment guru, ETFs offer a compelling opportunity to invest in the financial markets with the ease ad agility of a superhero.

A Bitcoin ETF is a financial product designed to track the price of Bitcoin. It allows investors to gain exposure to Bitcoin without directly owning the cryptocurrency. Instead, investors can purchase shares of the ETF, which represent a fraction of Bitcoin's value. These ETFs are traded on traditional stock exchanges, providing convenience and accessibility to mainstream investors.

In general, the operational mechanism of a standard ETF closely resembles that of a Bitcoin ETF. Here's a breakdown of how it works:

The ETF is established by a sponsoring company, which acquires the underlying assets it represents. Similarly, a Bitcoin ETF would be created in the same manner.

Contracts are entered between the ETF and large broker-dealers, who serve as authorised dealers for the fund.

Authorised dealers purchase significant quantities of ETF shares directly from the fund and sell them to institutional and retail investors on a public stock exchange.