Special income cases and tax implications in India
  • in

  • Cryptocurrency

3 Mins

Special Income Cases and Taxation Implication in India

Mon May 29 2023

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.

Astik Dubey

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.

  • Astik Dubey
  • in

  • Cryptocurrency

Thu Apr 11 2024

Ether ETFs: Charting the Regulatory Waters of Cryptocurrency Investments

byAditi Mendiratta

TaxNodes End of Season Sale

Sat Jul 15 2023

TaxNodes End of Season Sale

byTaxNodes Team

Implementing Post-Audit Corrective Measures - Addressing Discrepancies

Thu Jul 06 2023

Mastering Post-Audit Actions | TaxNodes

byAditi Mendiratta

Freelancers and Gig Economy Workers - Tax Planning Tips

Thu Jun 29 2023

Tax Planning Tips for Freelancers

byAstik Dubey

What are Pegged Value Crypto Assets?

Tue Jun 13 2023

What are Pegged Value Crypto Assets?

byAditi Mendiratta

Taxes on long term capital gains (LTCG)

Tue May 23 2023

How Is 10 Percent LTCG Tax Calculated?

byRhea Tripathy

Are tax calculators accurate?

Wed May 17 2023

Are Tax Calculators Accurate?

byRhea Tripathy

What is form 16? How to download form 16?

Tue May 16 2023

What is Form 16? How to download Form 16?

byKiruthika AS

Tax on crypto staking

Mon May 15 2023

Is Staking Crypto Taxable?

byKiruthika AS

10 tips to avoid getting a tax notice in India

Wed May 10 2023

10 Tips to Avoid Getting a Tax Notice in India

byRhea Tripathy

7 myths about income tax in India debunked

Mon Apr 17 2023

7 Myths About Income Tax in India Debunked

byRhea Tripathy

What is AIS? How to download AIS?

Fri Mar 24 2023

What is AIS? How to Download AIS?

byRhea Tripathy

What is 26AS? How to download 26AS?

Fri Mar 17 2023

What is 26AS? How to Download 26AS?

byRhea Tripathy

What is a personal loan emi calculator

Wed Mar 15 2023

Personal Loan EMI Calculator

byKiruthika AS

What is NFT and how does it work in blockchain

Mon Feb 13 2023

What is NFT? How does it work in Blockchain?

byMoumita Mitra