Last updated: September 10th, 2024 11:52 AM

Crypto Tax in India: Taxation On Cryptocurrency

The Income Tax Department (ITD) has not provided specific guidance on crypto taxes for Indian investors. However, the Income Tax Act includes key provisions—Section 115BBH and Section 194S—that govern the taxation of Virtual Digital Assets (VDAs), such as cryptocurrencies, NFTs, tokens, and more. Profits from VDAs may be subject to a flat 30% tax, a 1% Tax Deducted at Source (TDS), and potentially income tax at your individual slab rate on non-trading income. In this guide, we cover everything you need to know about crypto taxes in India for 2024, including the latest updates on income tax for crypto profits, the 1% TDS, filing Schedule VDA in your ITR, and more.

What is Cryptocurrencies?

Cryptocurrencies are digital or virtual currencies that use cryptography for security, making them difficult to counterfeit or double-spend. Unlike traditional currencies issued by governments (fiat money), cryptocurrencies operate on decentralized networks based on blockchain technology—a distributed ledger enforced by a network of computers (nodes). The most well-known cryptocurrency is Bitcoin, but there are thousands of other cryptocurrencies, often referred to as altcoins, such as Ethereum, Litecoin, and Ripple. Cryptocurrencies can be used for various purposes, including peer-to-peer transactions, remittances, and as a form of investment. They can be traded on crypto exchanges, stored in digital wallets, and in some cases, used to purchase goods and services.

Is crypto taxed in India?

Yes, cryptocurrency is taxed in India. In the Budget 2022, the Indian government officially recognized cryptocurrencies by categorizing them as Virtual Digital Assets (VDAs) and implemented a specific taxation framework for these assets.

Crypto Tax Rate in India

In India, you’ll pay a 30% tax on profits from trading, selling, or spending cryptocurrency. Additionally, a 1% TDS is applicable on the sale of crypto assets exceeding ₹50,000 (₹10,000 in certain cases) within a single financial year. Income earned through activities like staking, airdrops, or mining may also be subject to income tax at your individual slab rate.

Overview of Cryptocurrency Taxation in India

As mentioned above, In India, cryptocurrencies and other crypto assets are defined and taxed as Virtual Digital Assets (VDAs) under the Income Tax Act. Here’s how crypto taxation works:

Definition of Virtual Digital Assets (VDAs)

Introduced by Section 2(47A), VDAs cover all types of crypto assets, including cryptocurrencies, NFTs, and tokens.

Crypto Tax Rates Under Section 115BBH in India

Section 115BBH, introduced in the 2022 budget, mandates a 30% tax (plus applicable surcharge and 4% cess) on profits made from trading cryptocurrencies from April 1, 2022, onwards. This rate is equivalent to India's highest income tax bracket and applies regardless of whether the income is from investments or business activities. There is no distinction between short-term and long-term gains.

Section 194S: 1% TDS on Crypto Transactions

Section 194S imposes a 1% TDS on the transfer of crypto assets starting July 1, 2022, if the transaction value exceeds ₹50,000 in a financial year (or ₹10,000 in certain cases). This helps ensure that all crypto transactions are properly tracked.

Reporting Crypto Income

Indian investors must declare their crypto-related income as capital gains if the assets are held for investment purposes or as business income if they are held for trading purposes.

Tax Return Filing for Crypto Assets

Starting with the FY 2022-23, a new schedule called Schedule - Virtual Digital Assets (VDA) has been added to the Income Tax Return forms to specifically report gains from cryptocurrencies and NFTs. This requirement continues into the ITR for FY 2023-24.

30% Crypto Tax Rate in India: When Does It Apply?

In India, the 30% tax rate on cryptocurrency transactions applies under the following circumstances:

• Selling cryptocurrency for INR or another fiat currency.
• Trading one cryptocurrency for another, including transactions involving stablecoins.
• Using cryptocurrency to purchase goods or services.

However, not all crypto transactions are automatically subject to this 30% rate. In some cases, the Income Tax Department (ITD) may consider the activity as generating other forms of income, which would then be taxed at your individual tax slab rate upon receipt. These scenarios include:

• Receiving cryptocurrency as a gift (Check the specific rules in the gift tax section).
• Mining cryptocurrencies (For more details, see the mining tax section).
• Getting paid in cryptocurrency for services or work.
• Earning staking rewards or airdrops.

If you later sell, trade, or spend these cryptocurrencies or tokens, you may be liable for the 30% tax on any gains made from such transactions.

Which Crypto Transactions Are Subject to Tax in India?

Here's a quick guide to help you understand which crypto transactions are taxed and how:

Transaction	Tax Impact
Buying crypto	1% TDS, typically deducted by the exchange (excluding international & P2P trades)
Selling crypto	30% tax on any gain
Trading crypto for crypto	30% tax on any gain
Spending crypto	30% tax on any gain
Holding crypto	Tax-free
Moving crypto between your own wallets	Tax-free
Airdrops of crypto	Income Tax at your individual rate, 30% tax if sold later
Hard forks	Income Tax at your individual rate on receipt, 30% tax if sold later
Gifts of crypto	The recipient is generally taxed, with exceptions for gifts from close family or under ₹50,000
Donating crypto	30% tax on any gain; donations of crypto are not tax-deductible
Mining rewards	Income Tax at your individual rate, 30% tax if sold later
Staking rewards	Income Tax at your individual rate, 30% tax if sold later

Also read: Lottery tax in India

Tax Guide for DeFi Transactions in India

DeFi, or Decentralized Finance, is a segment of the cryptocurrency world that offers financial services like lending, borrowing, and trading without traditional banks, using blockchain technology. Since the Income Tax Department hasn't issued specific guidelines for DeFi, these transactions are taxed under the general rules for Virtual Digital Assets (VDAs). Here's how DeFi income might be taxed:

• Earnings from activities like liquidity mining, governance participation, or receiving reward tokens are typically taxed at your individual income tax rate when received.
• Referral rewards and income from platforms that offer 'play to earn' or 'browse to earn' opportunities (like Permission.io or Brave) are also taxed at your individual rate upon receipt.

Remember, if you later sell, swap, or use these tokens, you may owe an additional 30% tax on any profits made, consistent with the general crypto tax rules in India.

Understanding the 1% TDS on Crypto Assets in India

In India, a 1% Tax Deducted at Source (TDS) has been introduced for crypto asset transactions to ensure transparency and track the flow of investments in the cryptocurrency market. Here’s a detailed breakdown of how this TDS works and its implications:

What is the 1% TDS on Crypto?

The 1% TDS is applicable on the transfer of crypto assets, where "transfer" means a change in ownership—such as selling, trading, or spending crypto assets—not merely moving them between wallets.

Key Points to Understand:

• Effective Date: The 1% TDS came into effect on July 1, 2022.

Responsibility for Deduction:

• Indian Exchanges: If you’re trading on an Indian exchange, the TDS will be automatically deducted and deposited with the government by the exchange.
• P2P and International Trades: For peer-to-peer (P2P) transactions or trades on international exchanges, the buyer is responsible for deducting the TDS and depositing it with the government.
• Crypto-to-Crypto Trades: In transactions where one cryptocurrency is traded for another, both the buyer and the seller must each pay the 1% TDS.

Specified Persons and Exemptions

If the transaction is conducted by a "specified person" (individuals or Hindu Undivided Families), no TDS is required if the total value of crypto trading activities does not exceed ₹50,000 in a financial year. For other taxpayers, this threshold is reduced to ₹10,000.

Filing and Compliance

• For Specified Persons: You’re required to submit TDS using Form 26QE within 30 days after the month in which the TDS was deducted. However, since this form is currently not available on the income tax portal, investors must wait for further guidance from the Income Tax Department.
• For Other Taxpayers: You need to obtain a TAN, file Form 26Q quarterly, and ensure TDS payments are made by the 7th of the following month. Given the complexity, it’s advisable to seek assistance from a tax professional when filing Form 26Q.
• Claiming TDS Credit: When filing your tax return, you can claim credit for the TDS deducted, which can help reduce your overall tax liability.

Penalties for Non-Compliance:

• Section 271C: Failure to Deduct TDS: If you fail to deduct the required TDS, you may face a penalty equal to the TDS amount that was due.
• Section 276B: Failure to Deposit TDS: If you deduct the TDS but fail to deposit it with the government, you could face severe penalties, including imprisonment for 3 months to 7 years, along with a fine.

New Penalties for Avoiding TDS:

The Indian government has implemented stringent measures to enforce TDS compliance. Non-compliance could result in not only a 100% penalty on the TDS amount but also potential imprisonment for up to 7 years, depending on the severity of the violation.

Do You Pay Tax When You Buy Crypto in India?

• Tax-Free: You don't pay tax when you buy crypto with fiat currency like INR. However, there is a 1% Tax Deducted at Source (TDS) applicable on these transactions.
• 1% TDS: If you're purchasing crypto through an Indian exchange, this TDS is automatically deducted and deposited by the exchange on your behalf.
• P2P and International Exchanges: If you're buying crypto through a P2P platform or international exchange, you're responsible for deducting the 1% TDS yourself. You'll need to file the TDS return using Form 26QE or Form 26Q and remit the remaining amount to the seller.
• Tax-Free for HODLing Crypto: Simply holding onto your crypto (HODLing) does not trigger any tax liability. You only pay tax when you sell, trade, or spend your crypto.
• Long-Term Tracking: For long-term HODLers, it’s important to use platforms that store trading information for extended periods, as exchanges may only keep data for 3 to 6 months. Tools like Koinly can help automate record-keeping and tax calculations.
• Trading Crypto for Crypto: When you trade one cryptocurrency for another, any profits you make are subject to a 30% tax. To calculate your capital gain, subtract the cost basis of the crypto you traded from its fair market value on the day of the trade.
• Buying Crypto with Stablecoins: Buying crypto with stablecoins (like USDT) is treated as a crypto-to-crypto trade, and any profits from these transactions are also subject to a 30% tax.

Do You Pay Tax When You Sell Cryptocurrency in India?

Yes, you do. If you sell cryptocurrency and make a capital gain, you'll be subject to a 30% tax on that gain, whether you're selling for fiat currency like INR or trading one cryptocurrency for another.

Selling Crypto for Fiat Currency (INR)

• 30% Tax: Any profits you make from selling crypto for INR are taxed at a flat 30% rate.
• 1% TDS: Additionally, a 1% TDS will be deducted. If you're using an Indian exchange, this TDS is automatically deducted. For P2P or international platforms, the buyer is responsible for deducting and depositing the TDS.

Selling Crypto for Another Crypto

• 30% Tax: When you trade one cryptocurrency for another, any resulting profit is also taxed at 30%.
• 1% TDS: A 1% TDS is also applicable on these transactions, and the seller is responsible for ensuring it is deducted and deposited.

Do You Pay Tax When Transferring Crypto?

No, you don't pay tax when transferring crypto between your own wallets. Transferring crypto between your own wallets is not considered a taxable event because the ownership of the crypto doesn't change. Despite the potentially confusing terminology used by the Income Tax Department (ITD), there is no "transfer of VDA" in this context, so no tax applies.

How Are Airdrops and Forks Taxed in India?

In India, airdrops and forks are treated similarly to receiving gifts, meaning they may be taxed both upon receipt and later when disposed of.

New Coins from a Hard Fork

• Soft Forks: No new assets are received, so there’s no taxable event.
• Hard Forks: When you receive new coins from a hard fork, you’ll pay Income Tax at your individual slab rate. The tax is calculated based on the fair market value of the new tokens in INR on the day you receive them.
• Subsequent Transactions: If you later sell, swap, or spend these coins, you’ll be liable to pay a 30% tax on any profit from the transaction.

Receiving an Airdrop

• Receiving an airdrop is treated like receiving a gift. You’ll pay Income Tax at your individual slab rate based on the fair market value of the tokens in INR on the day you receive them.
• Exemption: You may be able to claim a tax exemption if the total value of airdrops and other gifts received is up to ₹50,000 in a financial year.

Selling or Swapping Coins from an Airdrop:

• When you later sell, swap, or spend the coins or tokens received from an airdrop, you’ll be subject to a 30% tax on any profit.
• Cost Basis: The cost basis for these airdropped tokens is their fair market value in INR on the day you received them.

How Are Gifts of Crypto Taxed in India?

In India, receiving a gift of cryptocurrency usually incurs a tax liability, but there are some key exceptions. Here's a concise overview of how crypto gifts are taxed:

Tax-Free Gifts:

• Gifts from Close Family Members: Crypto gifts from immediate family members, such as parents, spouses, siblings, and lineal ascendants or descendants, are tax-free.
• Gifts Under ₹50,000: If you receive crypto gifts worth less than ₹50,000 from friends or relatives in a single financial year, these are tax-free.
• Special Occasions: Gifts received on special occasions, like weddings or through inheritance, are also exempt from tax.

Taxable Gifts:

• Gifts Over ₹50,000: If the value of a crypto gift exceeds ₹50,000 in a financial year, you'll be taxed at your applicable income tax slab rate on the entire value of the gift.

Donating Crypto:

• Tax on Donations: Donations of crypto to registered charities in India are not tax-deductible. Instead, these donations are treated as a disposal of an asset, and any profits are taxed at 30%.

Crypto Losses: What Indian Investors Need to Know?

For Indian crypto investors, the news isn't favourable when it comes to losses. Under Section 115BBH, you cannot offset crypto losses against crypto gains or any other income. This means if you incur a loss on one crypto asset, you cannot use it to reduce your tax liability from profits on another. Additionally, crypto-related expenses (such as transaction fees) cannot be claimed as deductions. The only allowable deduction is the cost of acquisition, meaning the price you originally paid to buy the asset.

Is Any Crypto Tax-Free in India?

Not all crypto transactions are taxable in India. Here are instances where you won't have to pay tax on your crypto:

• HODLing Crypto: Simply holding onto your cryptocurrency (without selling or trading) is tax-free.
• Transferring Between Your Own Wallets: Moving crypto between your personal wallets does not trigger any tax liability.
• Receiving a Gift of Crypto:
  • Gifts of crypto from close family members are tax-free, regardless of the amount.
  • Gifts of crypto up to ₹50,000 from friends and relatives are also tax-free.

Lost or Stolen Crypto in India: What You Need to Know

The Income Tax Department (ITD) has not provided specific guidance on how lost or stolen crypto is treated. However, based on precedents from Indian court rulings regarding the loss or theft of other types of assets, you likely won’t be required to pay tax on crypto that has been lost due to a hack, scam, or theft. That said, given the ITD's strict approach to not allowing crypto losses to be offset against gains, it's highly unlikely that you would be able to claim and offset losses from lost or stolen crypto assets against your taxable income.

How to Calculate Tax on Crypto in India?

To calculate your crypto tax in India, you’ll need to determine your profits, which are subject to a flat 30% tax. Here's a step-by-step guide:

Determine Your Cost Basis

Your cost basis is the amount you paid to acquire your crypto or the fair market value in INR on the day you received it. This value is crucial as it forms the starting point for calculating your profits. Unlike in some other countries, the Income Tax Department (ITD) in India does not allow you to include transaction fees, such as buy or sell fees, on a cost basis.

Calculate Your Profits

Once you have your cost basis, calculate your profits by subtracting the cost basis from the amount you received when you sold your crypto.

• For Sales: Subtract your cost basis from the sale price in INR.
• For Other Disposals (e.g., trading or spending crypto): Subtract your cost basis from the fair market value in INR on the day of disposal.

Cost Basis Methods in India

Calculating gains and losses becomes more complex when dealing with multiple crypto assets. In India, the commonly recognized methods for calculating cost basis include:

• First In, First Out (FIFO): The first crypto you bought is considered the first crypto you sold.
• Average Cost Basis: The cost basis is calculated as the average price of all your crypto holdings.

How Is Crypto Mining Taxed in India?

The Income Tax Department (ITD) has not yet provided specific guidelines on how crypto mining is taxed. However, it’s likely that the ITD will treat the income from mining as additional income, subject to the following tax implications:

• Income Tax: You'll pay Income Tax at your individual slab rate based on the fair market value of the mined coins in INR on the day you receive them.
• Subsequent Transactions: If you later sell, swap, or spend the mined coins and make a profit, you'll also be liable for a 30% tax on that gain.

Given the lack of clarity from the ITD, it’s advisable to consult an experienced accountant to understand the potential tax implications of your crypto mining activities.

How Is Crypto Staking Taxed in India?

Similar to mining, the ITD has not released specific guidance on the taxation of crypto staking. However, it’s likely that staking rewards will be treated as additional income with the following tax implications:

• Income Tax: You'll pay Income Tax at your individual slab rate based on the fair market value of the staking rewards in INR on the day you receive them.
• Subsequent Transactions: If you later sell, swap, or spend your staking rewards and make a profit, you'll be liable for a 30% tax on that gain.

When Do I Need to Report Crypto Tax to the Income Tax Department?

In India, the financial year (FY) runs from April 1st to March 31st of the following year. You must report all your income, including from crypto, for this period by July 31st.

Reporting Deadlines:

• For FY 2023-24 (April 1st, 2023, to March 31st, 2024), the deadline for filing taxes is July 31, 2024, for taxpayers not subject to audits.
• If you're undergoing an audit, the deadline extends to October 31, 2024.
• A belated return can be filed by December 31, 2024.

How to File Your Crypto Tax?

For the financial year 2023-24 (Assessment Year 2024-25), you will need to file your crypto taxes using either the ITR-2 or ITR-3 form, depending on how you're reporting your income:

• ITR-2: Use this form to report your crypto profits as capital gains.
• ITR-3: Use this form to report your crypto income as business income.

Both forms include a dedicated section to report crypto gains or income under “Schedule VDA” (Virtual Digital Assets). IndiaFilings experts are ready to assist you with accurate crypto tax calculations and seamless ITR filing. Let us handle the complexities so you can file your crypto taxes without any mistakes. [shortcode_102]