Crypto taxation in India: All you wanted to know

Gaurav Mehta, CEO of Catax, a new service that specializes in crypto taxation in India, shares with Blockmagic some of the major aspects of the new policy of crypto taxation in India in terms of what needs to be done.

From being banned outright to heavily taxed, crypto trading has seen major ups and downs in India while everyone awaits a good regulatory framework within which to operate. In terms of adoption, India ranks among the top five countries contributing to investments in various digital assets and trading.

A major blow came this year when a 30% capital gains tax plus 1% TDS was introduced on various types of crypto transactions. This even while the legal status of cryptocurrencies remains uncertain, and the central bank digital currency, the CBDC, is soon to be introduced by next year in pilot phases.

To answer some common doubts and worries regarding crypto tax in India, Gaurav Mehta, CEO of Catax, a new service that specializes in crypto taxation in India, shares with Blockmagic some of the major aspects of the new policy of crypto taxation in India in terms of what needs to be done.

Q1: Kindly explain the crypto related tax rules in simple terms.
Gaurav Mehta: A 30% flat tax on capital gains has been introduced, and that means, if you buy crypto at Rs 100 and sell for Rs 200, then you have made a profit of Rs 100. 30% of Rs 100 is Rs 30, and that is the tax you have to pay.

There is no set-off of losses allowed in case of digital currencies. Setting off of losses means adjusting the losses against the profit or income of that particular year. Offsetting profit and loss is allowed in the Equities market, but not allowed for Virtual Digital Assets. So, if you made profit in Bitcoin and loss in Ethereum, then you cannot offset profit with losses.

A 1% TDS on every transaction is also applicable. According to the rules, it is mandatory for the buyer of a virtual digital asset to deduct 1 percent of the amount paid to the seller (Indian resident).

The TDS rule came into force from July 1 for transactions of more than Rs 10,000.

Q2: What is the tax status of sending crypto as a gift?

This depends on who you have sent crypto as gift. The gift of virtual digital assets (like Bitcoin, Tokens, or NFTs) from specified relatives (parents, siblings, children, grandparents, grandchildren, parents-in-law, etc.) is not taxable in the hands of the recipient. Meanwhile, the virtual digital assets in excess of Rs 50,000 from non-relatives are taxable.

Q3: Is there a separate category for crypto income, or is it also included in capital gains? Typical crypto income sources include free airdrops, payment received for any product or service, tokens earned from mining and staking, etc.

Crypto gains is defined as “Income from Other Sources”, and should go in that head during filing of tax forms. Free Airdrops are defined as income from other sources too.

Payment in crypto received for products or services, if audited by a chartered accountant, can come in the head of product and services delivered with GST and other implications.

Q4: What official crypto transaction records or documentation is required while availing a professional tax service? Do crypto exchanges offer any financial statements to help calculate capital gains?

Yes. Tax submitted to the government should be backed with an official transaction statement of audited report from a chartered accountant based on the amount of transaction. National and international exchanges provide transaction statements with details like amount deposited, withdrawn, trade history, profit and loss, etc. Unfortunately, these statements are incomplete to calculate your crypto taxes because of set-off loss rule, auditing requirements and TDS applicable. But definitely, statements are helpful for taxes calculation based on the profile and transaction nature of individuals.

Q5: There is a 1% tax to be deducted as TDS on transactions. Please share more details on what transactions fall under this, which party deducts the tax, and how is this deduction to be shown and deposited officially?

TDS exemption for non-specified persons is up to Rs 10,000 each fiscal year. That means, if individuals dealing with you are trading and have done less than Rs 10,000 in transactions, then no TDS is deductible. But it is difficult to know this, and so everyone prefers to deduct TDS on every transaction irrespective of the amount.

One who is selling/transferring crypto has the responsibility to deduct 1% TDS and file it with the government.

Indian residents transferring virtual assets will pay 1% TDS (VDA). The CBDT has waived some TDS. For instance, TDS will not be deducted if the consideration is Rs 50,000 in a financial year for a specified person who is: 1) an individual or Hindu Undivided Family (HUF) who does not have any other income under “profit and gains of business or profession”; and 2) an individual or HUF with income under “profit and gains of business or profession” whose gains from business does not exceed Rs 1 crore.

Q6: Are there any specific sections in the IT return forms that related to declaring crypto assets or income?

There are no such sections at present.

Q7: Crypto tax appears to be challenging to figure out. Is it advisable to do this oneself or take professional help? Are there any online tools to help with calculating the liabilities?

Cryptocurrency is based on a revolution technology of blockchain as a public ledger containing all the transactions, and therefore it is easy to perform bookkeeping, accounting, and taxation.

Due to Indian rules and regulation of TDS and the no set-off of loss rule, it is difficult to calculate taxes when individuals are trading in many cryptocurrencies and that too hundreds of times.

We can use an Excel sheet or take help of a charted accountant who understands cryptocurrencies and the blockchain ledger.

Alternatively, there are online tax solutions like Cleartax, Catax, Taxbit, etc., which can help you maintain crypto books, perform accounting and generate automated tax reports based on blockchain auditing. They are simple to use, and you have to upload transaction statements provided by the exchange. They also perform automated blockchain auditing, tax calculations and report generation, which can be used to file taxes on your own, or you can share these reports with a CA for them to complete your taxation.

Q8: Any new information or important advice you’d like to share with our readers.

Cryptocurrency is considered as anonymous and untraceable, but unfortunately, that is absolutely a wrong proposition. Every transaction since the day of creation of a cryptocurrency is available on blockchains, and the government has built advance blockchain analysis and forensic capabilities to identify who are the individuals evading taxes and moving funds.

So, if you are in cryptocurrency, you should be extra cautious and always file crypto taxes proactively, especially when you are trading on international exchanges.

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