Is Cryptocurrency Taxed in India?

Is Cryptocurrency Taxed in India?

Is cryptocurrency legal or not? From having a questionable character now its transaction is being taxed. The Indian government has imposed a tax on any income earned from the purchase and sale of virtual assets including cryptocurrencies like Bitcoin, Ethereum, etc. Although the government has imposed taxes on income earned from cryptocurrencies, they are still not accepting them as legal tender.

8So now the question is if cryptocurrency is not legal how can it be taxable? So, here’s the answer

Why is cryptocurrency being taxed?

Cryptocurrency is not directly being taxed. As they are not yet considering it legal you are not required to pay taxes in order to own a cryptocurrency, as they are not taxable in and of themselves.

Before 1st April 2022, there were no proper guidelines on how cryptocurrency transactions were to be taxed but on February 1 2022, Finance Minister of India, Ms. Nirmala Sitharaman unveiled the Union Budget for the fiscal year 2022–2023, which included an announcement of a 30% tax on income derived from the transfer of digital assets.

Bitcoin and other non-fungible tokens will be subject to this levy. When it comes to taxes, the IRS (Internal Revenue Service) views cryptocurrency as property if you sell or use Bitcoin in a transaction, you must pay taxes on it.

This is due to the fact that if its market value has changed, you will incur capital gains or losses, and if you are using it for payment, it would be considered business income.

How cryptocurrency is being taxed?

Under the income tax Act 1961 latest amendment, any transaction related to VDA (Virtual Digital assets) will be charged 30% tax plus surcharge and cess on income earned, and 1% TDS will be charged on the total sale amount and not merely on profits.

Tax cannot be paid in the form of cryptocurrency instead it needs to be paid in Fiat currency.

If you are not using any exchange then you must have your TAN (Tax Deduction Account Number) for the tax to be deducted at the source.

TDS needs to be paid monthly and its return must be filled quarterly.

When do you have to pay tax on crypto?

Profits generated by using different crypto tokens over the course of a full fiscal year will be netted against the full 30% tax on all cryptocurrencies. This profit is not net profit on all your holdings, but sum of taxes accumulated from each transaction.

Say for example:

Suppose, you bought 1 Bitcoin when BTC was trading around 20 lakh, and again another Bitcoin when its price was 30 lakh, and sold both Bitcoins and 25 lakh INR.

So though you do not have made any NET PROFIT, you still need to pay taxes.

You need to pay 30% taxes+surcharge on your 5 lakh profit from the sale of your first Bitcoin.

On the other hand, for the BTC which you sold at 5 lakh loss, the rule says, you can’t nullify your profit.

Will airdrops be taxed?

Airdrops is a marketing activity mostly used by startups for promotion in cryptocurrency space or sometimes to reward existing holders by some blockchain companies.

Sometimes, when new crypto is launched they are airdropped in crypto wallets.

Here your EXPENSE is ZERO. You need to pay 30% straight on your profit, whenever you sell.

Can we avoid this Cryptocurrency tax in India?

Cryptocurrency or any other tax can’t and should not be avoided.

However, there are ways you can reduce your taxes.

Some investors believe that this new Crypto tax can be avoided with the help of decentralized exchanges and P2P transactions (peer-to-peer transactions) but it is not correct.

If you are a citizen of India, no matter where you buy and sell your cryptocurrency, you still will be needing to pay taxes as per the current Income tax rules.

However, if you stay outside Indian for more than 210 days, you are not required to pay taxes in India. This is why many cryptocurrency founders and veterans are shifting to Dubai, where you are not required to pay any tax on your profit.

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