Crypto Tax India in 2024: Everything You Need to Know

As you dive into the dynamic world of cryptocurrencies in India, understanding the landscape and the tax implications is crucial. The crypto market in India is burgeoning, with a significant uptick in adoption rates and market growth projected to continue robustly into the near future. The Indian government has recognized this potential, shifting from a stance of caution to proactive regulation and taxation to ensure financial stability and prevent tax evasion​. 

With KuCoin becoming the first global cryptocurrency exchange to register with FIU-India, we bring our Indian users a comprehensive guide to help them understand and report their crypto taxes as they enjoy trading on our platform. 

Recent regulatory changes have introduced a tax regime specific to cryptocurrencies, reflecting their growing mainstream acceptance. Since April 1, 2022, crypto assets have been taxed as Virtual Digital Assets (VDAs), making it essential for investors and traders to comprehend these laws to manage their portfolios effectively and comply with the legal requirements​. 

Virtual Digital Assets (VDAs) encompass a broad range of digital assets, including cryptocurrencies like Bitcoin and Ethereum, as well as Non-Fungible Tokens (NFTs). These assets are distinct from traditional financial tools and currencies due to their cryptographic foundation and digital nature. The term "VDA" was formally adopted in the Finance Bill 2022, signifying a legislative move to recognize and regulate these digital entities within India's financial and tax frameworks.

Typical Forms of Virtual Digital Assets

• Cryptocurrencies: Bitcoin, Ethereum, and other similar digital currencies that use blockchain technology to secure transactions and control the creation of new units.

• Non-Fungible Tokens (NFTs): Unique digital tokens representing ownership or proof of authenticity of a specific item or asset, typically used in digital art, collectibles, and other digital goods.

Virtual Digital Assets (VDAs) vs. Traditional Assets

Unlike traditional assets, VDAs operate in a decentralized digital ecosystem that does not require intermediaries like banks or financial institutions for transactions. This key distinction significantly influences their use, acceptance, and regulatory treatment.

Traditional Assets

• Tangible Nature: Traditional assets such as real estate, gold, and even conventional securities like stocks and bonds often have a tangible presence or are recognized within established legal frameworks.

• Regulatory Framework: These assets are typically regulated by specific government bodies, and their transactions are monitored and facilitated through recognized financial institutions.

Virtual Digital Assets

• Intangibility: VDAs lack physical form and exist only in the digital realm. Their ownership and transfer are recorded on digital ledgers such as blockchains.

• Decentralized Framework: The operation of VDAs bypasses traditional financial systems and intermediaries, relying instead on the underlying technology like blockchain for governance and security.

Understanding the nuances between VDAs and traditional assets helps stakeholders navigate the complexities of investment and compliance within the evolving digital asset landscape. This distinction is particularly crucial as India and other countries continue to develop their regulatory frameworks to accommodate the growing prominence of digital assets in the global economy.

Timeline of India’s crypto tax regulations

As part of the efforts to regulate VDAs, the Indian government, under the Finance Act 2022, has laid down specific tax implications for transactions involving these assets. As stipulated by Section 115BBH of the Income Tax Act, any income from the transfer of VDAs is taxed at a flat rate of 30% plus applicable surcharges and cess. Additionally, the government requires a 1% Tax Deducted at Source (TDS) on transactions involving VDAs to improve transparency and compliance.

This comprehensive taxation regime highlights the Indian government's approach to integrating cryptocurrency transactions within the formal economic framework while ensuring tax compliance. 

What Is Section 115BBH of the Income Tax Act? 

Section 115BBH specifically addresses the taxation of income from the transfer of virtual digital assets. Under this section, any gains derived from the transfer of VDAs are taxable at a rate of 30%. 

It's important to note that no deductions for expenses or allowances are allowed, except for the cost of acquisition. Moreover, losses from VDA transactions cannot be set off against other income or carried forward to subsequent years, emphasizing the need for strategic financial planning in cryptocurrency investments​. 

The tax implications for various cryptocurrency transactions under the Indian tax regime are as follows:

How Much Tax on Crypto Gains? 

Both these activities are taxed at the standard rate of 30%. Whether you are frequently trading or selling off a long-held investment, the gains from these transactions are subject to this flat tax rate.

Calculating Tax From Trading Crypto

Calculate Profit

• Profit = Selling Price - Purchase Price

• Profit = INR 15,00,000 - INR 10,00,000 = INR 5,00,000

Calculate Tax Payable

• Tax Payable = Profit × Tax Rate

• Tax Payable = INR 5,00,000 × 30% = INR 1,50,000

Example: Suppose you bought 1 Bitcoin for INR 10,00,000 and later sold it for INR 15,00,000. Your profit would be INR 5,00,000. The tax payable on this gain would be 30% of INR 5,00,000, which equals INR 1,50,000.

How Much Tax on Mining Crypto? 

The income generated from crypto mining activities is treated as income from other sources and taxed at 30%. The value assessed is based on the market value of the cryptocurrency at the time it is mined​. 

Calculating Tax From Mining Crypto

• Tax on Income from Mining

• Income from Mining = Fair Market Value at Time of Receipt

• Income from Mining = INR 2,00,000

• Tax Payable = Income from Mining × (30% + cess)

• Assuming cess is 4%, then:

• Tax Payable = INR 2,00,000 × 34% = INR 68,000

• Capital Gain if Sold for Higher Price Later

• Selling Price - Fair Market Value at Time of Mining = Capital Gain

• INR 3,00,000 - INR 2,00,000 = INR 1,00,000

• Tax on Capital Gain = Capital Gain × 30% = INR 30,000

• Capital Loss if Sold for Lower Price Later

• Selling Price - Fair Market Value at Time of Mining = Capital Loss

• INR 1,50,000 - INR 2,00,000 = -INR 50,000

• Note: This loss cannot be set off against other income types.

Example: If you mine Bitcoin, and the fair market value at the time of receipt is assessed (say INR 2,00,000), that becomes your taxable income for that financial year, taxed at 30% plus cess. If after mining, the price of Bitcoin rises or falls, it does not affect the tax calculated at the time of mining. However, if you decide to sell the mined Bitcoin later, any price change will influence the capital gains or losses you report.

• If you mined Bitcoin valued at INR 2,00,000 and later sold it for INR 3,00,000, your capital gain would be INR 1,00,000, which would be subject to a separate capital gains tax.

• Conversely, if the value decreases and you sell the Bitcoin for INR 1,50,000, you would report a capital loss of INR 50,000. This loss, however, cannot be set off against other income types per the current tax guidelines in India.

Are Crypto Gifts and Airdrops Taxable? 

Cryptocurrencies received as gifts or via airdrops are also taxed at their fair market value as income from other sources. If the value of the gift exceeds Rs. 50,000 and it comes from a non-relative, it could attract additional gift tax under certain conditions​. 

Calculating Tax on Cryptos Received as Gifts or Airdrops

Determination of Taxable Event

• Taxable Income =

• Fair Market Value of Cryptocurrency if Fair Market Value > INR 50,000 and not exempt

• 0 otherwise

Calculation of Tax

• Tax Payable = Taxable Income × (30% + cess)

• Assuming cess is 4%, then:

• Tax Payable = Taxable Income × 34%

Example

• If you receive a cryptocurrency through an airdrop valued at INR 60,000:

• Taxable Income = INR 60,000 (since it exceeds INR 50,000 and is not exempt)

• Tax Payable = INR 60,000 × 34% = INR 20,400

How Much Tax on Minting/Staking Crypto? 

The rewards from staking or minting are considered income from other sources and taxed accordingly. The calculation of taxes will be based on the market value of the rewards at the time they are received​. 

Calculating Tax from Crypto Staking 

Example: If you earn INR 1,00,000 worth of crypto through staking, the entire amount is taxable at 30% plus cess. Your tax calculation would be INR 30,000 plus INR 1,200 (cess), totaling INR 31,200.

Calculation of Taxable Income:

• Taxable Income from Staking = Value of Crypto Earned

• Taxable Income from Staking = INR 1,00,000

Calculation of Tax Payable:

• Tax = Taxable Income × Tax Rate

• Tax = INR 1,00,000 × 30% = INR 30,000

Calculation of Cess:

• Cess = Tax × Cess Rate

• Cess = INR 30,000 × 4% = INR 1,200

Total Tax Liability:

• Total Tax Payable = Tax + Cess

• Total Tax Payable = INR 30,000 + INR 1,200 = INR 31,200

What Is the 1% TDS Rule on Crypto Transactions? 

The 1% TDS on all crypto transactions in India was implemented from July 1, 2022, as per Section 194S of the Income Tax Act. This tax applies to the transfer of VDAs like cryptocurrencies and NFTs. On KuCoin, this deduction is handled by our platform itself, whereas in P2P transactions, the buyer is responsible for deducting and depositing the TDS​. 

Example: If you sell Bitcoin worth 19,000 USDT on KuCoin, the KuCoin exchange would deduct 190 USDT as TDS and deposit it against your PAN. This TDS serves to regulate the market by ensuring tax compliance on every crypto transaction, aiming to prevent tax evasion.

How to Manage TDS and Claim Credits

To manage TDS on crypto transactions effectively:

• Ensure that any TDS deducted is accurately recorded.

• When filing your annual tax return, you can claim the TDS amount as a credit. If TDS deductions exceed your tax liability, you may claim a refund.

• You must maintain detailed records of all transactions, including the amounts and the TDS deducted, to support your claims during tax filing.

Calculating the taxes on your crypto transactions involves a few straightforward steps:

1. Identify the Transaction Type

You need to first identify what kind of crypto transaction you are calculating taxes for—whether it's trading, mining, staking, or receiving crypto as payment or gifts.

2. Calculate the Gain or Loss 

To determine your gain or loss from a crypto transaction, subtract the cost of acquisition (how much you paid to acquire the crypto) from the selling price.

Example

• Suppose you purchased 1 Bitcoin at INR 30,00,000 and sold it later for INR 40,00,000.

• Your gain from this transaction would be INR 40,00,000 (selling price) - INR 30,00,000 (purchase price) = INR 10,00,000.

3. Apply the Tax Rate

The gain is subject to a flat tax rate of 30% plus a 4% cess. You must calculate 30% of the gain and then apply an additional 4% cess on the tax amount.

Continuing the Example

• Tax on the gain = 30% of INR 10,00,000 = INR 3,00,000.

• Cess = 4% of INR 3,00,000 = INR 12,000.

• Total tax liability = INR 3,00,000 + INR 12,000 = INR 3,12,000.

Note: Losses from crypto transactions cannot be set off against other types of income and cannot be carried forward to future years in India. This makes accurate calculation and documentation crucial.

For a more automated approach, several online tools like Koinly or ClearTax offer crypto tax calculators that can help streamline the process by automatically calculating your gains and potential tax liabilities based on your transaction history​. 

Reporting crypto transactions on your tax return is crucial to ensure compliance with Indian tax regulations. Here’s a step-by-step guide to help you accurately report your crypto transactions:

1. Access the Income Tax Portal: Log into the Indian Income Tax Department's e-filing portal.

2. Select the Appropriate ITR Form: Use ITR-2 for capital gains or ITR-3 if you have crypto business income.

3. Fill Schedule VDA: This schedule is specifically for reporting Virtual Digital Assets. You will need to provide details such as the date of acquisition and transfer, the cost of acquisition, and the sale consideration.

4. Review and Submit: After filling out the necessary schedules, review your return for accuracy, complete the verification, and submit your return​. 

Note: Ensure all details are accurate and submitted by the tax filing deadline to avoid penalties. The use of digital tools can aid in gathering and organizing transaction details, making the tax reporting process more manageable.

Check how to report your crypto tax from your KuCoin transactions. 

Tips on Tax Planning

• Use Accounting Methods: Utilize specific accounting methods like FIFO (First-In-First-Out) to calculate your gains and losses from crypto transactions. This helps manage the cost basis of your assets in a way that could reduce your tax burden.

• Time Your Transactions: Consider the timing of selling your assets. Selling assets in a year where you expect lower income can benefit from lower tax brackets.

• Harvest Tax Losses: If you realize a loss on your crypto investments, selling them can help reduce your taxable gains by balancing out other capital gains. However, direct loss set-off against other income types isn't allowed​. 

Legal Routes to Reduce Tax Burden

• Tax-Loss Harvesting: Sell crypto assets that are at a loss to offset the gains from other investments, keeping in mind that direct offset against other income is not permissible.

• Diversification and Stablecoins: Diversifying your investments and using stablecoins can potentially reduce volatility and manage tax impacts more predictably.

• Seek Professional Advice: Consulting with a tax advisor specializing in crypto assets can provide personalized strategies based on your financial situation.

By understanding and utilizing these strategies, you can ensure compliance with tax regulations while optimizing your tax liabilities associated with crypto transactions.

Several common mistakes can lead to complications and penalties when dealing with crypto taxes in India. Here are the key ones to avoid:

1. Not Reporting All Transactions: Every crypto transaction, including trades, sales, purchases, and even small transfers between crypto wallets, must be reported. Failure to report can lead to underreporting and significant penalties.

2. Misunderstanding TDS Obligations: Many investors are unclear about when and how TDS should be deducted. Remember, a 1% TDS applies to crypto transactions over certain thresholds, and it's crucial to ensure proper deduction and reporting, especially when dealing through P2P or international platforms​. 

3. Incorrect Calculation of Cost Basis: Often, investors guess or average their cost basis, leading to inaccurate reporting of gains and losses. It's important to meticulously track the acquisition cost of each asset to calculate any capital gain or loss correctly​. 

4. Ignoring Crypto-to-Crypto Trades: Even if you are not converting crypto to fiat, crypto-to-crypto trades are taxable events and must be reported. You must assess each transaction’s fair market value at the time of the trade to report any gains or losses accurately​. 

5. Failure to Claim Capital Losses: If you’ve incurred losses, these can often offset other capital gains, but they must be correctly claimed and documented. Not doing so can result in a higher tax liability than necessary​. 

6. Overlooking TDS Credits: If TDS has been deducted from your transactions, you can claim these amounts as credits against your tax liability. Ensure you claim these credits when filing your returns to avoid overpaying taxes​. 

How to download trading data when filing your taxes. 

As a crypto investor or trader in India, you must understand and comply with the country's crypto tax laws. India's crypto tax regulation landscape is complex and evolving, making it essential to stay informed and meticulous in your tax preparations. Consider consulting with tax professionals who specialize in cryptocurrency to navigate these waters effectively. They can provide tailored advice and help you optimize your tax strategies, ensuring you meet your obligations while minimizing your tax exposure. You can also engage with experts to stay updated on the latest regulatory changes and how they might impact your investments.

• India TDS Deduction, Tracking, and FAQ

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• Everything You Should Know About KuCoin P2P Trading 

• 7 Benefits of Becoming a KuCoin P2P Merchant

• How KuCoin Delivers a Secure P2P Trading Experience

• How to Make Your First Trade on the KuCoin Spot Market

1. When should I file my crypto tax in India? 

In India, you should file your crypto tax along with your annual income tax return, which is typically due by July 31st for the previous financial year, unless extended by the government.

2. When should I start paying 30% tax on crypto?

A 30% tax rate on crypto gains has been applicable from the fiscal year starting April 1, 2022.

3. Do I have to pay tax on buying crypto in India?

No, purchasing crypto is not a taxable event. Taxes are due when you sell crypto at a profit, not when you buy it.

4. Are NFTs also taxed?

Yes, NFTs are considered virtual digital assets, and profits from their sale are taxed at 30%.

5. Can I adjust my crypto gains under the tax slab?

No, crypto gains are taxed at a flat rate of 30%, regardless of your income tax slab.

6. Is there a tax when transferring crypto to other exchanges or wallets?

No, transferring crypto between wallets or exchanges is not taxable unless you are selling or trading digital assets.

7. Is there any tax on crypto mining or staking?

Yes, the income from mining or staking is taxable. The value of the mined or staked crypto is taxed at 30% when it is sold or exchanged.

8. What happens if my deducted TDS exceeds my tax liability?

You can claim a refund for the excess TDS when you file your income tax return.

9. What if my tax amount exceeds the TDS deducted?

You must pay the difference between the tax due and the TDS deducted.

10. Do I have to pay tax if I haven't withdrawn my profits from KuCoin?

Yes, the tax liability arises when you realize a gain (i.e., sell the crypto), not when you withdraw funds from KuCoin to your bank account.

11. What is the minimum amount of crypto tax to pay in India? 

The minimum amount of crypto tax to pay in India is determined by a 1% TDS on crypto transactions exceeding INR 50,000 in a financial year for individuals, and INR 10,000 in some cases, such as for certain businesses .