Cryptocurrencies and Taxes: What You Should Know?
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Nowadays the name of cryptocurrency is on everyone's lips. People are investing heavily in Bitcoin, Ethereum and other cryptocurrencies. Some people are calling it the currency of the future, while some consider it just a speculative market. But, amidst all this, one question is the most important - how will tax be levied on the income from cryptocurrency?
If you are also investing in crypto or want to do so, then it is very important for you to understand how tax is levied on earnings from cryptocurrency in India and what things you should keep in mind.
In this blog, we will give you complete information about cryptocurrency and tax in easy Hindi , so that there is no confusion.
The first question that comes to mind is whether crypto is legal in India? The simple answer is –
- The government has not banned crypto trading , which means you can buy and sell.
- But, the government has also clearly said that crypto is not a legal currency .
- The government considers it a digital asset , just like gold or property.
- This means that investing in crypto is not illegal, but it will be taxed.
The Finance Minister made it clear in the 2022 budget that every income from crypto will be taxed at 30% . This rule has come into effect from April 1, 2022.
- Whatever profit is made by selling crypto, a direct tax of 30% will be levied on it.
- There will be no expense or deduction on this profit, only the cost of acquisition can be deducted.
- 1% TDS will also be deducted on every crypto transaction if the total transactions in a year exceed Rs 50,000.
There are many ways to earn money from cryptocurrency. Let's know how much tax will be levied on which method:
If you buy crypto and later sell it at a higher price, this is called a profit.
- 30% tax will be levied on this profit.
- This will be counted as Short Term Capital Gain .
- There will be no discount on this, nor can the loss be carried forward.
If you mine crypto yourself, that is, create new crypto using your computer, then this will also be considered as your income.
- 30% tax will be levied on this also.
- There will be no deduction for the expenditure incurred in mining.
If someone has gifted you crypto, this is also taxable.
- If you have received a gift from a close family member, no tax will be levied.
- If the value of the gift is more than Rs 50,000 and the gift is received from an outsider, then 30% tax will be levied.
What is 1% TDS and why is it necessary?
The government has made a rule to impose 1% TDS on every crypto transaction . This means that when you buy or sell crypto, the exchange (platforms like WazirX, CoinSwitch) will deduct 1% directly and deposit it to the government.
This rule has been made so that the government can keep an eye on every transaction and prevent tax evasion.
Suppose you bought crypto worth Rs 1 lakh and sold it after a few months for Rs 1.5 lakh.
- Profit = Rs 1.5 lakh – Rs 1 lakh = Rs 50,000
- 30% tax on this = Rs 15,000
- 1% TDS deducted while purchasing crypto = Rs 1,000
In this way, you have to understand that the income from crypto is completely taxable.
No. If you have incurred a loss in any crypto, you cannot adjust
this loss with your other income (like salary, interest or property income) .
The government has clarified that losses from crypto will be adjusted only in the same category , that is, the loss of one crypto cannot be set off against the profit of another crypto.
Even if you trade on foreign exchanges like Binance, KuCoin, you still have to follow the tax rules of India.
- Whether the platform is Indian or foreign, if you are an Indian resident, you will have to pay tax.
- Transactions made on foreign exchanges will also be taxed at 30%.
Is GST also applicable on crypto?
If you are providing crypto trading services yourself or trading for someone else, you may need to obtain GST registration .
- The common investor need not worry about GST.
- Only professional traders and service providers need to see this.
The answer to this is not simple.
- Currently, the government has made tax rules, which means that crypto trading cannot be termed completely illegal.
- But the government has indicated several times that there may be more strictness on this in the future.
- Therefore, be completely cautious while investing.
How to do tax planning?
If you are investing in crypto, it is important to –
- Keep a record of every purchase and sale.
- Get your TDS report from the exchange.
- Show crypto income in the correct Income Tax Return (ITR).
- Consult a tax expert from time to time.
As exciting as it is to earn profits from crypto, it is equally important to pay tax on it.
If you pay tax with the correct information, you will not face any problem in the future.
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