Wondering how taxation on crypto works in India? How much do you have to pay tax on cryptocurrency in India? How 1% TDS is levied on crypto? Don’t worry we have covered all the aspects of taxation on cryptocurrency in India and created a Complete guide for you –
As per Union Budget 2022, Cryptocurrencies were to be categorized as Virtual Digital Assets (VDA). It is confusing to understand but cryptocurrencies are classified as assets, but their tax classification differs from that of traditional assets. A person is required to pay a flat 30 percent tax under the new crypto tax law on revenue derived from the transfer of cryptocurrencies and other virtual digital assets, such as Defi, and NFTs.
What Are Virtual Digital Assets (VDA)? Let’s Understand –
Subsets of all digital assets traded on a blockchain, such as non-fungible tokens (NFTs), cryptocurrencies, and other virtual assets, are referred to as virtual digital assets. VDAs were defined in the Finance Bill 2022’s newly added Clause (47A) under Section 2 of the IT Act, 1961.
According to the Clause, A Virtual Digital Asset (hereafter “VDA”) is defined as any information, code, number, or token (not being Indian currency or foreign money), generated through cryptographic techniques or otherwise, by whatever name called, giving a digital representation of value exchanged with or without consideration, with the promise or representation of having intrinsic value, or operates as a store of value or a unit of account, including its use in any fiat currency.
It includes applying it to any investment or financial activity. VDAs, however, are not just used in investment programs; they can also be electronically transmitted, stored, or exchanged. Due to the wording “produced using cryptographic techniques or otherwise” used in the Finance Bill, virtual digital assets (VDAs) also encompass cryptos and other digital assets.
Do You have to pay Tax on Cryptocurrency In India?
Yes, India has levied taxes on cryptocurrencies. The Income Tax Department has provided guidance on how precisely cryptocurrency is taxed in India. In short, every crypto investor has to pay a flat tax of 30% on profits or income gains from cryptocurrency, and a 1% tax will be deducted at the source in the form of TDS for selling or transferring of VDAs (cryptocurrency).
Key Points of Tax on Cryptocurrency in India
- The proposed 30% tax on crypto is effective from April 1, 2022, and the proposed 1% TDS is effective from July 1, 2022.
- Profit gains from any virtual digital asset (VDAs) are to be taxed at a flat rate of 30%.
- Transferring or selling of crypto assets are levied with 1% TDS ( In some cases higher TDS of 5% is also applicable )
- Gifts received in the form of crypto assets would be taxable if the fair market value exceeds the threshold limit of Rs 50,000.
- Profits are considered as income and subject to be taxed under section 115 tax.
- Within the framework of the Income Tax Act, crypto airdrops or coins obtained through gaming may be regarded as gifts, and such gifts are taxable in the recipient’s hands.
- There is no way to be eligible for discounted tax in case of long-term earnings than on short-term ones (in comparison to the stock market)
- From Assessment Year 2023–2024, the taxpayer will be required to pay a 30% tax on cryptocurrencies and other VDAs.
- The offset of a loss from one VDA with income from another VDA is not applicable in the case of crypto investments.
- You cannot carry over a loss from the transfer of cryptocurrency to the following fiscal year to offset profits in that year.
When will you pay tax on crypto in India?
Underlying are the scenarios in which you are liable to pay taxes on crypto according to the Income Tax Department of India.
- Profit gains while selling crypto for INR or other available fiat currency
- Trading crypto for crypto, including stablecoins.
- Doing payment in Crypto for goods and services
- Getting payment in the form of crypto
- Getting a gift in the form of crypto
- Earning from staking of crypto
- Earning from Crypto Mining
- Gifts in the form of airdrops
What is 1% TDS on Crypto In India?
According to new government guidelines, investors of crypto assets must pay 1% TDS on their transactions from July 1st, 2022. Through the passage of the Finance Act 2022, Section 194S was added to the Income Tax Act. According to the new section, the selling or transfer of a virtual digital asset (VDA) must deduct income tax on that money in an amount equivalent to 1% of the payment which comes under TDS.
When will a Higher TDS of 5% is applicable on Crypto In India?
As most of the crypto investors fall under the 1% TDS bracket, A small portion of us will also be required to pay a higher 5% TDS. As Section 206AB states if the underlying conditions are not met, Exchange is liable to deduct higher TDS up to 5% as per government guidelines.
What is Tax on Crypto Losses in India?
Losses from digital assets cannot be adjusted against any other profits or income because cryptocurrency is not seen as an asset but rather as income in India. There is no taxation on loss that occurred due to the trading of VDAs.
How Tax is Applied to Gifts in the form of crypto?
The proposed cryptocurrency tax laws in India adopt a generalized approach across the board, and this extends to how the ITD may tax cryptocurrency gifts. Receivers of virtual assets, including NFTs, are required to pay a flat rate of 30% income tax on the value of their gifts. There are a few exceptions to this rule, though:
- Gifts that total less than Rs. 50,000 (in a single fiscal year, not each gift) are tax-free.
- Family gifts are exempt from taxes. Gifts from parents, siblings, and other family members are exempt from taxes. In the same vein, gifts received as part of a wedding gift, through a bequest, or as an inheritance are all excluded from income tax, regardless of their value.
How TDS is Deducted on BuyUcoin App?
BuyUcoin Web & App has incorporated the guidelines provided by the government of India. TDS will be levied on the user’s applicability under section 206AB (Click here to read the detailed explanation of section 206AB). As there is no way to determine the net revenue of individual & corporate users so, TDS will be deducted on every transaction made on the exchange.
The scenario in which TDS will be deducted on BuyUcoin App
- Buy in EZ OTC – No TDS Deduction
- Sell in EZ OTC – 1% or 5% TDS Deduction
- Buy in Classic – No TDS Deduction
- Sell in Classic – 1% or 5% TDS Deduction
TDS Deduction Explained with Example
Suppose you have bitcoin in your crypto portfolio (you have bought BTC in past) and you want to sell them.
So you created a sell order in the EZ OTC market for a value (Trade Value) of ₹ 50,000
Trade Value = ₹ 50,000
Your Order Summary will look Like this –
The Current Price of Bitcoin = ₹15,08,899.44
Note: On selling crypto assets of ₹ 50,000, You are levied with 1% TDS that will be deducted by the exchange.
1% TDS of ₹ 50,000 Trade Value = ₹ 500
Note: In Some cases (under section 206AB), like the user hasn’t filed ITR for the past 2 fiscal years a higher TDS of 5% will be levied.
5% higher TDS of ₹ 50,000 Trade Value (If Applicable) = ₹ 2,500
So in your case, 1% TDS has been applied and INR 500 is deducted as TDS by the exchange which will be paid to the government.
Eventually, you will be selling Bitcoin for INR 50,000, which is in bitcoin 0.032805 but You will get a payment of INR 49,500
Is The 1% TDS Mandatory For All Crypto Investment?
The TDS of 1% will be applicable starting on July 1st, 2022, for all sale transactions of crypto assets and NFTs, according to the updated Income Tax laws. However, if the income tax due is less than the TDS deducted, this amount may be claimed as a refund when completing the ITR for the fiscal year.
Will 1% TDS is still applicable even after paying 30% Tax?
Let’s take an example –
Tushar bought bitcoin at a price of INR 50,000 and qty 1 BTC at the start of the fiscal year. Tushar saw that market is going down and hold its investment in the hope that sometimes the market will go up. Eventually, around the end of the fiscal year, the market comes to green and Tushar decided to sell his bitcoin at a price of INR 1,50,000.
Buying Price of Bitcoin – INR 50,000
Quantity Bought – 1 BTC
Selling Price of Bitcoin – INR 1,50,000
Selling quantity – 1 BTC
INR created – 150000
TDS Applicable – 1%
TDS Amount deduction – INR 1,500
INR received after TDS deduction – 1,48,500
Profit Gain – INR 1,00,000
Tax of Profit Gain – 30%
Tax Amount liable to pay – 30% of INR 1,00,000 = INR 30,000
Tax paid under TDS = 1,500
Final remaining tax liability at the end of the year = 28,500