In the ever-changing world of money, earning income has become more diverse than ever before. Cryptocurrencies like Bitcoin and others have opened up new ways to earn money through salary, consultancy fees, and interest. However, as the financial landscape evolves, so do the rules for paying taxes on this income. In this blog, we will explain in simple terms how taxes work for salary, consultancy fees, and interest earned from cryptocurrencies in India. Get ready to learn about these special income cases and how they are taxed.

Consultancy Fee

When an Indian resident receives Virtual Digital Assets (VDAs) as consultancy fees, it falls under the purview of total income as Business Income. This means that it is treated as income earned through business activity. However, the valuation of such VDAs lacks specific guidelines. A practical approach is to consider their fair market value at the time of receipt. It's worth noting that expenses incurred in providing consultancy services can be deducted from the total income. This ensures a fair assessment of tax liability while acknowledging the costs associated with offering professional advice. If you sell these cryptocurrencies later, you will be taxed under Section 115BBH of the Act at a rate of 30%. Your taxable income will be the sale price minus the fair market value of the cryptocurrencies when you received them.

Salary

For Indian residents who receive VDAs as salary, it is categorized as Income from Salaries. This means that it is treated as regular salary income for tax purposes. Similar to consultancy fees, the valuation of these VDAs is based on their fair market value at the time of receipt. However, unlike business income, employees cannot claim expenses except those mentioned under Section 16 of the Income Tax Act.

If you hold VDAs for investment purposes, they are considered capital assets. If you sell these cryptocurrencies later, you will be taxed under Section 115BBH of the Act at a rate of 30%. Your taxable income will be the sale price minus the fair market value of the cryptocurrencies when you received them.

Interest on Loan

In scenarios where an Indian resident provides loans denominated in VDAs, they are considered debts in the hands of the borrower. Interest received against such loans becomes part of the total income, falling under the category of Income from Other Sources. Valuation of the VDAs received as interest follows the fair market value principle at the time of receipt. It's important to note that any expenditure incurred in relation to these loans can be claimed as a deduction under Section 57 of the Act.

Similar to salary and consultancy fees, the subsequent sale of VDAs received as interest attracts taxation under Section 115BBH of the Act, with a tax rate of 30%. The taxable income is calculated as the sale price received minus the cost price. The cost price, in this case, is the fair market value of the cryptocurrency on the date of receipt.

Conclusion

As the ways we earn money keep changing, it's important to know the tax rules. If you earn income through cryptocurrencies like salary, consultancy fees, or interest in India, it's crucial to understand how taxes work for them. By knowing the different categories, values, and deductions related to these special income cases, you can make sure you follow the tax rules correctly. If you find the complexities of cryptocurrency taxes in India overwhelming, don't worry!  TaxNodes can help you with everything related to filing your income tax return.

TaxNodes is like having your own virtual tax consultant. We provide a complete solution for filing your tax return, specifically for cryptocurrency income. We can guide you through the process and ensure that you comply with all the tax regulations. So, stay informed, follow the rules, and make the most of your cryptocurrency income with the help of TaxNodes, your virtual tax consultant.

byAstik Dubey

Astik is a law student diving deep into indirect Tax and business law. With a flair for business writing and a special interest in crypto taxation, he turns complexity into captivating articles. Join his enlightening blog, where law and business intersect.

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