Taxpayers Alert: How Investors Are Taxed On Cryptocurrency Transactions In India?

The Indian government has consistently introduced measures to tackle the risks involved in the ballooning crypto markets. Trades taking place in cryptocurrencies has always been in the radar of governments and central banks across the globe including India as well. At home, gains in crypto assets like Bitcoin, Ethereum, Dogecoin, BNB and non-fungible tokens are liable to be taxed at a hefty 30% rate.

In Union Budget 2022, Finance Minister Nirmala Sitharaman tightened the bolt on profits that were made by selling, swapping or transferring cryptocurrencies. She classified Crypto and NFTs as virtual digital assets (VDA) and the gains arising from it was identified as capital gains and hence falling under the taxable brackets. There is also a tax deducted at source (TDS) of 1% applied on the transfer of these VDAs.

The hefty tax rate has been a spoilsport for crypto exchanges as demand for digital assets like Bitcoin, Ethereum and others has taken a hit.

As per TaxNodes in collaboration with India's leading crypto exchange WazirX; Cryptos and NFTs are classified as "Virtual Digital Assets," and Section 2 (47A) of the Income Tax Act was added to define them. Although the definition is quite comprehensive, it primarily refers to any information, code, number, or token generated by cryptographic means that's not an Indian Rupee or a foreign fiat currency. In simple words, VDAs refer to all kinds of assets, including NFTs, tokens, and cryptos.

If you carry out any of the following transactions in cryptocurrencies, you'll have to pay the below-mentioned tax rates:

1. Trading: Profits made from trading cryptos are taxed at a rate of 30% (plus applicable surcharge and cess).

2. Selling: Profits made from selling cryptos are taxed at the same rate of 30%.

3. Gifting: When cryptos are gifted, the recipient is liable to pay tax on the gift's fair market value at the time of receipt.

TaxNodes-WazirX blog said, that although the 30% tax rate is applicable in most cases, various events in the crypto lifecycle will be taxed differently. Generally, all such transactions will be taxed at the individual's tax slab rates.

Furthermore, it needs to be noted that irrespective that the person has earned short-term or long-term capital gains, they must pay taxes on cryptocurrency transactions. Additionally, an individual must pay a cess of 4% on top of the flat rate of taxes implied.

These tax rates have been in effect since April 1, 2022.

Also, recently, a 20% TCS rate will be applied on investments of more than Rs 7 lakh in foreign stocks, mutual funds, cryptocurrencies, or property in a financial year. However, domestic investors who hold foreign stocks are exempted from the TCS rule.

TaxNodes, founded in 2022, is a crypto taxation and ITR-filing platform that helps crypto traders and investors calculate, evaluate, and file their crypto gains and taxes accurately. It teamed up with WazirX to help resolve challenges when it comes to calculating and paying taxes, especially when there is crypto income. Therefore, they have created a cutting-edge platform that streamlines tax calculations and income tax filings for you.

Many crypto exchanges have launched their tax services to help users file their ITRs and pay taxes in cryptocurrency.

Here's an example of how users will be taxed on cryptocurrency gains:

Tax payable amount after making gains in cryptocurrency:

Using the Taxnodes calculator, let's suppose you purchased Rs 10 lakh worth of cryptocurrencies, and your selling price is Rs 12 lakh. Then, your profit will come around Rs 2 lakh.

You will be taxed on your profits of Rs 2 lakh -- which would be Rs 60,000 of 30% tax rate, Rs 8,000 of 4% cess, taking your total tax amount to Rs 68,000.

The formula is: Income from a Cryptocurrency = Transfer Value of Crypto - Cost of Acquisition.

Your taxable amount is higher on higher gains. Taking the same example, your purchasing price in cryptocurrency is Rs 10 lakh, while your selling value stood at a whopping Rs 25 lakh. This would mean --- your gains are Rs 15 lakh -- which results in Rs 4.50 lakh at a 30% tax rate and Rs 60,000 at 4% cess -- taking your total tax payable amount to a massive Rs 5.10 lakh.

Taxnodes highlighted that the rate of taxation directly impacts returns on investments. Hence, one of the essential elements that you must consider while making an investment decision is taxation. Cryptocurrencies are the latest and most popular investment alternatives among the many options available nowadays.

Disclaimer:

The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.