Crypto Tax In India: The Current State & How Union Budget 2024 Can Help

As we await the Union Budget 2024, being prepared and understanding the current and potential tax implications can help you make the most of the ongoing bull run.

As we approach the Union Budget 2024, several potential changes could impact the taxation of crypto assets in India.

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As the global crypto markets are on a bull run, the excitement among Indian investors is also palpable. However, amid the euphoria, it is crucial to remain mindful of the tax implications that come with crypto investments in India. With the Union Budget 2024 on the horizon, understanding the current tax framework and anticipating potential changes can help investors make informed decisions and optimise their portfolios.

Current Taxation Landscape

In India, the taxation of crypto assets has evolved over the past few years, with the government gradually tightening regulations to bring more transparency and accountability to this burgeoning sector. As it stands, the tax treatment of crypto assets is as follows:

Income tax on capital gains: Crypto gains are taxed at 30 per cent flat irrespective of income slabs and no transference of loss is currently allowed. 

1 per cent TDS on sale of crypto assets: Crypto assets, when sold (or converted to another), have a 1 per cent TDS deduction that goes into the PAN account of the individual. These can be offset or reclaimed at the end of the financial year.

Anticipated Changes In Union Budget 2024

As we approach the Union Budget 2024, several potential changes could impact the taxation of crypto assets in India. Here are some areas to watch:

Clarification on DeFi, Staking and Airdrops: Airdrops, Decentralised Finance (DeFi) activities and staking have gained popularity among Indian investors. However, the tax treatment of income from these activities remains ambiguous. The forthcoming budget may provide much-needed clarity on whether income from airdrops, staking and DeFi should be treated as capital gains or regular income.

TDS rationalisation: The 1per cent TDS on crypto is deemed very high among investors and traders. It has been a long-standing demand of the sector to rationalise this to 0.01 per cent so that more people are drawn to the sector. The logic is that, eventually, the government would be able to draw tax from a larger tax-paying pool while retaining the ability to track all crypto sales.

Reporting requirements: The government may also introduce stricter reporting requirements for crypto transactions. This could include mandatory disclosure of crypto holdings and transactions in income tax returns, similar to the reporting requirements for foreign assets.

Practical Advice For Crypto Investors

In light of the current and anticipated tax regulations, here are some practical tips for Indian crypto investors to navigate the ongoing bull run:

Limit the number of transactions: The more you transact, the more TDS gets deducted limiting your capital. Also, losses from one transaction may not be offset by gains from another if the crypto asset is different. A prudent strategy would be to keep transactions at a minimum and not react to the volatile movements of the market.

Keep detailed records: Maintain comprehensive records (for five years or more) of all your crypto transactions, including purchase and sale dates, amounts, and transaction IDs. This will simplify the process of calculating capital gains and ensure accurate tax reporting.

Plan for long-term gains: The Union government has always given a favourable tax treatment of long-term holdings in traditional investments like Fixed Deposits. If the government replicates this in crypto, it is prudent to look at long-term holdings. 

Consult a tax professional: The tax landscape for crypto assets can be complex and subject to change. Consulting a tax professional or an exchange like Giottus with expertise in crypto taxation to help you navigate the intricacies of tax compliance and optimise your tax strategy.

Stay informed: Stay updated on the latest developments in crypto taxation and regulatory changes. Being proactive and informed can help you make timely decisions and avoid potential pitfalls.

As we await the Union Budget 2024, being prepared and understanding the current and potential tax implications can help you make the most of the ongoing bull run. With careful planning and strategic decision-making, you can make the best of your crypto investments and ensure compliance with India’s evolving tax regulations.

(The author is the CEO of Giottus Crypto Platform)

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.