Tax Calculation

Tax Guide India

India has established a taxation system for cryptocurrencies and classed them as Virtual Digital Assets (VDAs). Cryptocurrency purchases, sales, and transactions are subject to a 30% capital gains tax on profits, as well as a 1% TDS tax on sales over ₹50,000 each year. All varieties of crypto assets, including cryptocurrencies, NFTs, and tokens, are included in VDAs. Individuals who receive additional income from mining or staking may also be required to pay income tax.

Crypto coins with indian flag
  • Profits from crypto trades are taxed at a rate of 30% plus surcharge and cess.
  • There is no option for a reduced tax rate on long-term capital gains or deductions under section 115BBH, which is how these profits are taxed.
  • The only deduction permitted is the cost of acquisition.
  • A 1% TDS fee is applied to VDA transfers.
  • The TDS of 1% is in force as of July 1, 2022, and the 30% tax rate is effective as of April 1, 2022.
  • Gains must be declared in the ITR for FY 2022-2023 on Schedule VDA

When will you pay tax on crypto in India?

Crypto Tax on profit

In some cases, such as when you give away cryptocurrency, mine coins, receive payment in cryptocurrency, receive staking rewards, or receive airdrops, you will only be subject to the individual tax rate. Nevertheless, you may be required to pay a 30% tax when selling, trading, or spending cryptocurrency. You might be responsible for paying the 30% tax on any earnings if you later sell, trade, or use these coins or tokens.

Let's say you purchased 1 Ether (ETH) on 1 June 2022 through WazirX for INR 130,000. You then transfer it to your non-custodial MetaMask Wallet. You hold it for a few months and then transfer it to CoinDCX and sell it on 1 Feb 2023 for INR 140,000.

To calculate the taxable amount, you first need to determine the gains that you made while transacting that asset. In this example you made a profit of INR 10,000 (i.e., INR 140,000 - INR 130,000). Please note here that transferring a crypto across exchanges or to your non-custodial wallet is not treated as a taxable transaction and hence does not attract any taxes.

Continuing the example

Taxable Amount = INR 10,000

Tax Liability = Taxable Amount * Tax Rate

INR 10,000 * 30% = INR 3,000

So, in this example, you would have a tax liability of INR 3,000 on your capital gain of INR 10,000 from the sale of Ether. Note that this calculation does take into account the TDS that needs to be levied on each transaction. We cover TDS later in this article.

DeFi income

DeFi transactions, such as receiving new tokens, referral bonuses, and play to earn revenue, may be subject to immediate individual taxation at the marginal rate, and tokens that are later sold or swapped may be subject to a 30% profit tax. Since the ITD has not made any specific instructions available, the Income Tax Act should be consulted for guidance.

As an example, suppose you purchased 200 MATIC for INR 16,000 through P2P marketplace on Binance. You then stake 100 MATIC for 5 months and receive 2 MATIC per month as reward i.e.10 MATIC in total. From a taxation standpoint this 10 MATIC is considered as income and will be taxed as your income slab.

1% TDS on crypto assets

Crypto Asset Transfers

To record transaction information and manage investments, crypto asset transfers in India now come with a 1% TDS tax requirement for sales, exchanges, or expenditures. From July 1, 2022, Indian exchanges, as well as buyers on P2P or international exchanges, must deduct TDS.

For designated persons with trading activity values under ₹50,000, no TDS is necessary. TDS on P2P or overseas exchanges must be paid, and those who must do so must submit Form 26QE within 30 days. Non- specified taxpayers are required to obtain a TAN, file Form 26Q on a quarterly basis, and pay TDS by the seventh day of the following month. Tax returns can be filed with a TDS credit claim.

Penalty and Losses Clause

  • Due to a new rule by the Indian government regarding TDS, cryptocurrency traders who violate the rule could be subject to fines and imprisonment ranging from 3 months to 7 years in addition to penalties equal to 100% of the TDS amount.
  • Crypto investment losses cannot be mitigated by profits or income for Indian investors. Except for the cost of acquisition, no other costs associated with cryptocurrencies are permitted.

How to calculate tax on crypto

Start by calculating your cost basis, which is the amount you paid for the cryptocurrency in INR and deduct it from the sale price or fair market value on the day you sold it to determine your earnings for tax reasons. You cannot increase your cost basis with the ITD. It is challenging to determine gains and losses for a variety of crypto assets since the cost basis approach chosen might have a big influence. The FIFO and average cost basis accounting methodologies are recognised in India.

Tax Implications on type of transaction:

Crypto Transfers Calculator
  • Purchasing cryptocurrencies using fiat money like Indian rupees is tax-free, except for transactions made through P2P or foreign websites, where 1% TDS must be deducted. It's tax-free to hold onto cryptocurrencies, but you must keep track of your transactions to determine your capital gains and losses. A 30% tax is applied to any gains from buying stablecoins or exchanging one cryptocurrency for another. No matter whether selling for fiat money or other cryptocurrencies, selling cryptocurrencies in India is subject to a 30% tax rate with a 1% TDS deduction.
  • Transferring cryptocurrency within your own wallets is tax-free because ownership isn't changed. When moving cryptocurrency between wallets, there is no virtual asset transfer.
  • Both the receipt and disposal of airdrops and forks may be subject to VAT. You must pay income tax on hard forks based on the tokens' fair market value in Indian rupees on the day you get them, as well as a 30% capital gains tax on any profits made from sales. When you receive an airdrop, it is like receiving a gift, and you must pay income tax depending on the token's fair market value. If your annual value of airdrops and presents is up to ₹50,000, you may be able to claim tax exemption. You will be required to pay a 30% tax on any gains made while selling, exchanging, or using the coins or tokens you acquired through an airdrop.
  • In India, gifts from immediate family members and those costing less than ₹50,000 are tax-free. It is also tax-free to receive gifts on special occasions like marriages or through inheritance. Gifts of cryptocurrency valued at more than ₹50,000 within a fiscal year are taxed under income tax. Crypto donations to recognised charity are not tax deductible and could incur a 30% tax. Except for presents under a specified amount or to family members for occasions, giving cryptocurrency in India is taxed. The recipient is responsible for paying any taxes, not the sender.
  • The Indian Income Tax Department hasn't made explicit rules about how mining and staking rewards are taxed, but it's likely that you'll be charged income tax at your individual rate when you receive rewards and a 30% profit tax when you sell, exchange, or use the rewards. It is advised to consult with a seasoned accountant.
  • When HODLing, transferring funds between wallets, or receiving gifts from friends, family, or members of your immediate family up to a certain amount, you won't have to pay tax on your cryptocurrency in India.

When and how do you need to report your crypto taxes?

Unless they are the subject of an audit, in which case the deadline is October 31, 2023, individuals in India must file their taxes for the most recent financial year (FY 2022-23) by July 31, 2023.

Individuals should use either the Income Tax Form ITR-2 (reporting as capital gains) or ITR-3 (reporting as business income) to file their crypto taxes in India for FY 2022-23 (AY 2023-24), and they should declare their earnings or income from crypto assets under the special section known as "Schedule VDA."

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