Cryptocurrency Tax FAQs: All Your VDA-Related Tax Queries Answered

From how to calculate the crypto tax to essential things an investor should keep in mind, read on to find out everything you need to know about VDA tax filings.

Keep detailed records of all your cryptocurrency transactions, including dates, values, and nature of the transactions to help with tax filings.

Source : Getty

Cryptocurrencies have gained significant popularity in India, and with their rise, the government has implemented taxation rules to ensure compliance. In 2022, the Union Budget clarified the official stance of the Indian government on virtual digital assets (VDAs), which include cryptocurrencies, NFTs, and tokens. Now that most of you might be filing your Income Tax Return (ITR), one of the most important aspects to understand is how cryptocurrencies are taxed in India.  

What Are The Crypto Taxation Rules In India?

All purchases, sales, and transactions involving cryptocurrencies are subject to a capital gains tax of 30 per cent on profits. This tax rate applies uniformly to all gains, whether they are short-term or long-term, without any provision for reduced rates or deductions under Section 115BBH.

Along with the capital gains tax, a 1 per cent Tax Deducted at Source (TDS) fee is applied to crypto asset transfers. For any transaction exceeding Rs 50,000 in a given financial year, the TDS that is deducted will be reflected in 26 AS and the same can be claimed back when filing an income tax return. The TDS fee ensures that the transaction is appropriately accounted for and taxed at the source. The implementation of the 1 per cent TDS came into effect on July 1, 2022.

To comply with tax regulations, individuals are required to declare their gains from cryptocurrencies in the ITR for the fiscal year 2023-2024 by July 31st 2023. These gains should be reported on Schedule VDA, which is specifically designated for virtual digital asset-related income.

How To Calculate Tax On Crypto Gains?

To understand easily, let us support that someone named 'A' bought five Bitcoins on January 1, 2023, for a total cost of Rs 10,00,000.

A decides to hold 2 Bitcoins and sells 3 Bitcoins on July 1, 2023, for Rs 15,00,000.

To calculate the tax liability, we'll consider the following:

The cost of acquisition of A for 5 Bitcoins is Rs 10,00,000.

To calculate the capital gains, we need to determine the selling price and subtract the cost of acquisition. 

Selling Price: A sold 3 Bitcoins for Rs 15,00,000.
 
Capital Gains: Selling Price - Cost of Acquisition 15,00,000 - 6,00,000= Rs 9,00,000

The capital gains of Rs 9,00,000 will be subject to a flat tax rate of 30%. 

Tax Liability: Capital Gains * Tax Rate (9,00,000 * 0.30) = Rs 2,70,000

In this example, A would have a tax liability of Rs 2,70,000 on the capital gains from the cryptocurrency transaction.

What Are The Tax Implications On Different Type Of Transactions? 

Cryptocurrency taxation in India involves various scenarios, and it's important to understand the tax implications in each case. Here's a simplified overview:

1. Purchasing Cryptocurrencies: Buying cryptocurrencies using Indian rupees (fiat money) is generally tax-free. However, if the purchase is made through peer-to-peer (P2P) or foreign websites, a 1 per cent Tax Deducted at Source (TDS) deduction applies.

2. Capital Gains Tax: Holding onto cryptocurrencies is tax-free. However, you must keep track of your transactions to determine capital gains and losses. Gains from buying stablecoins or exchanging one cryptocurrency for another are subject to a 30 per cent tax rate.

3. Selling Cryptocurrencies: Selling cryptocurrencies, whether for fiat money or other cryptocurrencies, is subject to a 30 per cent tax rate with a 1 per cent TDS deduction.

4. Wallet Transfers: Transferring cryptocurrencies within your own wallets is tax-free since ownership doesn't change. The movement of cryptocurrencies between wallets is not considered a virtual asset transfer.

5. Airdrops & Forks: Capital gains tax of 30 per cent applies to any profits made from selling these tokens. Airdrops are treated as gifts, and income tax is payable based on the fair market value of the tokens received. There may be tax exemptions if the total value of airdrops and gifts is up to Rs 50,000.

6. Gifting & Donating Cryptocurrencies: Gifts from immediate family members or those costing less than Rs 50,000 are tax-free. Gifts received on special occasions or through inheritance are also tax-free. Gifts valued above Rs 50,000 within a fiscal year are subject to income tax. Donating cryptocurrencies to recognised charities is not tax-deductible and may incur a 30 per cent tax. Giving cryptocurrencies as gifts in India is generally taxable, and the recipient is responsible for paying any applicable taxes.

7. Mining & Staking Rewards: The Indian Income Tax Department hasn't specified rules for taxing mining and staking rewards. It is likely that income tax will be charged on the rewards received at the individual's applicable tax rate. When selling, exchanging, or using the rewards, a 30 per cent tax on profits may apply. Consultation with an experienced accountant is advisable in such cases.

In summary, in India, cryptocurrency transactions have varying tax implications. HODLing, wallet transfers, and receiving gifts up to a certain value from friends, family, or immediate family members are generally tax-free. 

Tips For Crypto Investors 

1. Maintain Accurate Records: Keep detailed records of all your cryptocurrency transactions, including dates, values, and nature of the transactions. These records will help you calculate accurate gains or losses and determine your tax liability correctly.

2. Understand Taxation Rules: Familiarise yourself with the taxation rules and regulations applicable to cryptocurrency transactions in India. 

3. Calculate Capital Gains and Losses: Calculate your capital gains and losses from cryptocurrency transactions accurately using crypto tax calculators. 

4. Declare Airdrops & Forks: If you have received airdrops or experienced token forks, declare them as per the tax regulations. 

5. Seek Professional Advice: If you are unsure, consider consulting a tax professional or a qualified accountant who specialises in cryptocurrency taxation. They can provide guidance on the specific tax obligations related to your crypto investments and help you navigate the complexities of filing taxes.
Filing taxes accurately and on time is vital for crypto investors in India. Maintain records, understand tax rules, seek professional advice, and file your Income Tax Return (ITR) promptly. Stay proactive and compliant to contribute to a transparent crypto ecosystem.

(The author is the CEO and Co-founder of Mudrex, a global crypto investing platform)

Subscribe And Follow ABP Live On Telegram: https://t.me/officialabplive

Disclaimer: The opinions, beliefs, and views expressed by the various authors and forum participants on this website are personal and do not reflect the opinions, beliefs, and views of ABP Network Pvt. Ltd. Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. Cryptocurrency is not a legal tender and is subject to market risks. Readers are advised to seek expert advice and read offer document(s) along with related important literature on the subject carefully before making any kind of investment whatsoever. Cryptocurrency market predictions are speculative and any investment made shall be at the sole cost and risk of the readers.