Cryptocurrencies are digital currencies or assets that are decentralized and based on blockchain technology, which is a public digital ledger that records transactions and balances. Because of the speculative nature of the coins and the volatile crypto market, it has taken the government some time to clarify Crypto tax in India. Finance Minister Nirmala Sitharaman announced a cryptocurrency taxation model in the 2022 budget.
What exactly is Crypto Tax?
The income or gains from investing in or selling cryptocurrencies are subject to crypto taxation. Crypto taxation varies by country and frequently depends on whether the crypto asset is classified as a security, commodity, or currency. Crypto assets may be subject to capital gains tax, Value-Added Tax (VAT), or other forms of taxation in some cases.
When referring to cryptocurrencies, the Indian government refers to them as ‘Virtual Digital Assets’ (VDAs). Cryptocurrencies and digital tokens such as NFTs are referred to by this terminology.
How Much is the Cryptocurrency Tax in India?
In India, crypto tax process is relatively simple:
1.) The tax rate is determined by the length of time the digital assets were held:
- If assets are held for a long period of time (more than three years), a 20% tax rate with indexation benefits is applicable.
- If assets are held for a short period of time (= 3 years), a 30% tax on income from the transfer is levied.
2.) A 1% source tax is also levied on all transactions (or TDS – Tax Deducted at Source). The TDS threshold is Rs 50,000 per year.
How Do You Work Out Crypto Tax?
The cryptocurrency tax is calculated as a percentage of the income or gains from purchasing or selling cryptocurrencies. Furthermore, the applicable deductions will differ depending on whether the crypto transactions are reported as investments or business income.
1. In the event of a gain
In the case of a profit from the sale of crypto assets, the tax is calculated on the difference between the selling and purchasing prices. If you hold the cryptocurrency for less than a year, it is considered a short-term gain and is subject to regular income tax rates. If the crypto asset is held for more than a year, it is considered a long-term gain and is taxed at a lower rate.
2. In the event of a loss
Unlike in equity or traditional stock markets, the loss from selling crypto assets cannot be used to offset other capital gains in the same year under current Indian laws. This means that regardless of the size of your losses, your profits will be taxed.
If cryptocurrency transactions are reported as business income, the tax will be calculated on the net income. To calculate net income, deduct all direct and indirect business expenses from business income. The net income is then taxed at ordinary income tax rates.
4. In the case of additional sources of income
The government has not issued a formal clarification on crypto taxation when transactions are reported as other sources of income.
While the government’s laws on crypto tax in India are currently clear, it’s always a good idea to keep an eye on global regulatory laws on crypto. The government has stated that no concrete regulations will be drafted until there is global agreement on how to treat these digital assets. But when you need help to manage your cryptocurrencies and require a crypto portfolio tracker, that’s when Binocs should be your choice, being the best in the Crypto World.