India is currently formulating a regulatory framework for cryptocurrency exchange development, but people still need to consider how taxes work here. The widespread crypto adoption in India has encouraged businesses to take advantage of it.
- Profits from the sale, swap, or use of any cryptocurrency asset are taxed at 30% (plus any applicable surcharge and 4% cess).
- Profits are taxed by Section 115BBH.
- Taxes on long-term capital gains are not deductible.
- Aside from acquisition costs, no deductions are permitted.
- A 1% TDS applies to VDA transfers.
- The 30% tax rate implementation began on April 1, 2022, and the 1% TDS implementation was on July 1, 2022.
This article will take you through the ins and outs of cryptocurrency taxation in India.
How Does Cryptocurrency Taxation Work in India?
In India, cryptocurrency taxation works in a similar way to how other forms of taxation work. The main difference is that no central authority regulates or collects taxes on cryptocurrency transactions. Instead, each individual is responsible for paying taxes on their cryptocurrency gains.
In India, cryptocurrency taxation is as per the Income Tax Act. Any income from cryptocurrency must be declared as part of the total income. You must pay taxes if you profit from trading or investing in cryptocurrency. According to Economic Times,
- Section 115BBH of the Finance Minister’s 2022 budget imposes a 30% tax on cryptocurrency trading profits earned on or after April 1, 2022 (plus applicable surcharge and 4% cess).
- Section 194S was also enacted to broaden the tax base by imposing a 1% TDS deduction on all VDA transfers. These changes will take effect in the fiscal year 2022-23. (FY23).
When calculating taxes on cryptocurrency, the essential thing to remember is the capital gains tax. This tax applies to any asset that has increased in value over time. So, if you bought 1 Bitcoin for $1,000 and then sold it later for $2,000, you would be liable for the $1,000 profit you made for capital gains tax.
The capital gains tax on cryptocurrency in India is at 10%. This means that if you made a profit of $1,000 from trading cryptocurrency, you would owe $100 in taxes.
While calculating capital gains tax, paying taxes on cryptocurrency can be complicated. You may be subject to income tax if you are mining Bitcoin or another cryptocurrency. Similarly, if you are using crypto assets to buy goods or services, GST will apply.
Paying Tax For Cryptocurrency Exchange in India
In India, cryptocurrency exchanges are taxed according to applicable laws and regulations. The taxability of cryptocurrency is based on the nature and use of the cryptocurrency.
If you are holding cryptocurrency as an investment, you will be liable to pay taxes on any gains from selling or trading it.
- Short-term capital gains tax is applicable if you hold the cryptocurrency for less than 36 months before selling or trading it.
- Long-term capital gains tax is applicable if you hold the cryptocurrency for more than 36 months before selling or trading it.
If you are using cryptocurrency for business purposes, you will be liable to pay taxes on your business income. This includes any income earned from selling goods or services in exchange for cryptocurrency.
Cryptocurrency is also subject to GST in India. GST is levied on all supplies of goods made in India, including digital currencies like Bitcoin, Ethereum, Litecoin, etc.
1% TDS on Digital/Crypto Assets
Cryptocurrency taxation in India is a grey area. While the government has yet to release official guidelines on taxing crypto assets, they have proposed a 1% tax on all cryptocurrency transactions. This confused investors and traders, as it needed clarification on whether the tax applies to buying, selling, or both.
For now, the 1% tax only applies to the sale of cryptocurrency. If you buy 1 BTC for 100,000 INR and then sell it later for 120,000 INR, you will owe 1% of the total sale amount (2,400 INR) in taxes. It is important to note that this tax is not levied on the profit made from the sale; instead, it is a flat tax on the total transaction amount.
Crypto Gifts Taxation
There are two main ways to calculate cryptocurrency tax liability: the fair market value or the cost basis.
- Fair Market Value
The fair market value method calculates the tax liability on the sale of cryptocurrency based on the price it was sold. So, if you sold Bitcoin for INR 40,000, your tax liability would be 20% of INR 40,000 (INR 8,000).
- Cost Basis
The cost basis method calculates the tax liability that varies based on how much you paid for the cryptocurrency. So, if you bought Bitcoin for INR 30,000 and then sold it for INR 40,000, your tax liability would be 20% of INR 10,000 (INR 2,000).
Factors to Know to Calculate Tax on Crypto
Cryptocurrency taxation in India is a complicated subject. Three types of taxes could apply to your cryptocurrency holdings: capital gains, value-added tax (VAT), and income tax.
- Capital Gains Tax
If you sell your cryptocurrency for more than you paid, you owe capital gains tax on the difference. Or if you hold the cryptocurrency for less than a year, you owe short-term capital gains tax at your marginal income tax rate. Otherwise, if you held the cryptocurrency for more than a year, you owe long-term capital gains tax at 20%.
- Value-Added Tax
You will owe VAT on the transaction if you use your cryptocurrency to purchase goods or services. The VAT rate in India is 18%.
- Income Tax
You will owe income tax if you earn income from mining or providing services in exchange for cryptocurrency. The income tax rate in India ranges from 10% to 30%, depending on your income bracket.
In India, cryptocurrency taxation is a grey area, and however, any profits from investing in or trading cryptocurrencies are subject to capital gains tax. So, if you’re considering getting into the futuristic cryptocurrency game, make sure you factor in the taxes you’ll need to pay on your profits.
Pyramidion Solutions is a leading cryptocurrency exchange development company in India. We house a team of experienced professionals who can develop a cryptocurrency exchange app for you. So, if you want to get into crypto, get in touch with us today!