According to a report by KuCoin, India has an estimated 115 million crypto investors, representing 15% of the population aged 18 to 60 years. As the popularity of cryptocurrency continues to grow, so does the need to remain compliant with tax regulations.
Crypto enthusiasts must be aware of the tax implications of their investments and how they can stay compliant. From reporting capital gains to filing taxes correctly, there are several steps that crypto enthusiasts can take to stay compliant with tax regulations.
By understanding the compliance requirements and taking the necessary steps to follow them, crypto enthusiasts can ensure that their investments remain profitable and secure.
This CoinGabbar article will guide the reader about the tax regime in India related to cryptocurrency and how crypto enthusiasts can remain compliant with the tax regulations.
Hon’ble Finance Minister Nirmala Sitharaman introduced cryptocurrency tax in the 2022 budget session. The government has referred to all digital assets as “Virtual digital assets”. These include cryptocurrencies like Bitcoin and Ethereum and other digital assets like non-fungible tokens.
According to the new section 115BBH of the Income Tax Act, a taxpayer must pay income tax at a fixed rate of 30% if they receive money from the transfer of virtual digital assets.
The following are the points that a cryptocurrency holder should keep in mind:
At the end of each fiscal year, any income arising from the transfer of virtual digital assets like cryptocurrency and NFTs will be subject to a 30% tax.
No expense deduction is allowed to the traders.
The cost of acquisition is deductible.
You cannot set off the loss from digital assets against any other income.
The receiver of a digital asset gift will be subject to tax.
Over and above 30% taxation, there is a TDS of 1%.
According to section 194S of the Income Tax Act, 1961, a person making the payment on the transfer of a VDA must withhold TDS at a rate of 1% if the total transfer amount for the financial year exceeds INR 10,000. The cap of INR 50,000 has been specified for the people mentioned above.
It is also important to note that TDS would be deducted irrespective of whether you generate a profit or incur a loss.
Let us understand how to calculate crypto tax with an example:
Imagine you invest INR.2,00,000 in crypto at the beginning of the financial year. Then, at the end of the same financial year, you sold the crypto for INR.3,00,00.
The tax would be calculated on the additional INR 1,00,000 you earned.
The calculation would be INR 100,000 * 30%, which is INR. 30,000 in this case, plus the cess and surcharges.
However, it is essential to note that there would be no tax if you continue to hold your crypto. The taxation is only charged at the time of transfer and realizing the gains.
With investments, there comes a responsibility to be a compliant citizen.
Following are the ways in which you can remain compliant with the tax regulations and have a trouble-free trading experience:
The tax would be applicable from the financial year 2023-24. Therefore you must keep track of all information related to crypto assets you own before April 2022.
Ensure all the information you provide to the tax department is accurate and up to date. It will help in the precise calculation of your tax liabilities.
Since the taxation will be done on the INR amounts, ensure that you keep a record.
There are many online platforms where you can calculate your crypto tax without much hassle. These calculators are accurate and less time-consuming.
Apart from using tax calculators, you can take professional help as well. The professionals can guide you and help you prepare your tax returns accordingly.
Use the appropriate Income Tax returns 1,2,3, and 4 forms for your gains from virtual digital assets.
If you are an institution or an enterprise, make sure you file your returns using Form 5 or 6.
In case you receive crypto or NFT as a gift, it is essential to note that you will be taxed at the flat rate of 30% plus the surcharge and cess.
As the use of cryptocurrencies becomes more widespread, investors need to understand and follow the tax laws and regulations that apply to their digital asset transactions.
By following the points mentioned above, you can confidently navigate the complex tax landscape and enjoy the benefits of your digital asset holdings.