The rate of taxation directly impacts returns on investments. Hence, one of the essential elements that you must consider while making an investment decision is taxation. Cryptocurrencies are the latest and most popular investment alternatives among the many options available nowadays. 

Recently, there have been a rising number of investments and transactions in cryptocurrencies due to increased risk tolerance and investor awareness. Therefore, the government has introduced structured taxation norms and means to regularize crypto-related transactions.

How are Cryptocurrencies Taxed in India?

Cryptocurrency is a digital asset with a unique code that may be purchased, sold, or traded online. Each cryptocurrency investment is kept in a digital wallet that can be accessed using a private key, making it simpler to track, store, and trade. 

While discussing the financial budget for FY 2022–23, the government enforced taxes on cryptocurrencies due to the growing popularity of cryptocurrencies in India. Herewith, as per the provisions under Section 115BBH, income earned from cryptocurrency transfers is taxed at a flat rate of 30% without deducting any costs other than the acquisition cost.

Irrespective that the person has earned short-term or long-term capital gains, they must pay taxes on cryptocurrency transactions. Additionally, an individual must pay a cess of 4% on top of the flat rate of taxes implied.

What is a Cryptocurrency Tax Calculator?

For investors unfamiliar with the taxation norms and cess fees, calculating the final taxes applicable to cryptocurrencies takes a lot of work. Therefore, an investor can use the crypto tax calculator tool to calculate taxes on cryptocurrencies easier. 

A cryptocurrency tax calculator is a financial tool that estimates the value of taxes payable on the net proceeds from cryptocurrency transactions. With this tool, the possibilities of human errors and prolonged person-hours for calculation are significantly eliminated.

How to Calculate Taxes Levied on Crypto?

To calculate taxes levied on your crypto holdings, you must deduct the purchase price from the selling price of your cryptocurrencies to determine the revenue generated from cryptocurrency investments. 

Income from a Cryptocurrency = Transfer Value of Crypto - Cost of Acquisition

After that, calculate the tax amount applicable by deducting 30% from the net proceeds earned. Moreover, in addition to the 30% tax, you have to pay a cess of 4% of the taxed amount.

For Example: 

Purchase Price of a Cryptocurrency: Rs. 50,000 

The selling price of the Cryptocurrency: Rs. 70,000 

Net Profits Earned: Rs. 20,000

Tax Amount: 30% at Rs. 20,000 = Rs. 6,000 

Cess: 4% at Rs. 6000 = Rs. 240

Total tax liability: Rs. 6240

*Note - No set-off of losses is allowed in Crypto. This means if you have earned a profit from your Bitcoin trading and make a loss while trading Ethereum, you must pay taxes on your Bitcoin profit.

How to Use a Crypto Tax Calculator?

The tax rate on net income earned from cryptocurrency is 30%. Additionally, a cess of 4% of the tax amount has to be paid in addition to the 30% tax. However, the investor does not have to pay any taxes in the event of a loss on the sale of cryptocurrency.

The following are the steps to utilize a cryptocurrency tax calculator:

  1. Enter the amount received from the sale of your cryptocurrency holdings.
  2. Enter the initial investment amount, i.e., the acquisition cost.
  3. Your net profit from crypto investments will be shown along with the tax you must pay per the taxation norms under Section 115BBH.

Quick Wrap Up

Cryptocurrency is exceptionally preferred among young and risk-taking investors who want to increase their returns by taking more significant risks. After the government introduced regulatory laws, any uncertainty regarding the taxation of cryptocurrencies was eliminated. 

As a result, using a crypto tax calculator can make calculating your tax liabilities easier while saving time and removing the hassles of manual calculations. Also, it will support individuals in analyzing their financial budget and tax planning.