Forbes India 15th Anniversary Special

Know your crypto tax rules

While starting your journey in crypto assets, know some of the basics of how you will be taxed

Published: May 31, 2022 08:11:48 PM IST

Know your crypto tax rulesThe cryptosphere has had an eventful history in India. At the beginning, both policymakers and netizens viewed the asset class with scepticism before embracing it. Last year Finance Minister Nirmala Sitaraman made a landmark announcement by bringing crypto into the purview of taxation. This was the first time that the industry was officially acknowledged and recognised.

There was a time when the most frequently asked question by investors or casual observers was around the legality of the crypto industry. That’s not a concern anymore after the advent of scores of crypto exchange platforms that help millions of investors to trade even in small quantities of the new asset class. Today, the question is about how one will be taxed.

What are some of the things you need to know if you want to set out in this fascinating investment instrument?

Returns from all digital assets such as Bitcoin, Ether, Solana and Cardano will be taxed at 30%. Let’s take an example. Say, you carried out a transaction of Rs. 15,000 and bought a virtual asset and sold it for Rs. 45,000. This made you a neat profit of Rs. 30,000. The income tax would be charged at a flat rate of 30% on Rs. 30,000. So, the outlay in taxes would be Rs. 9,000.

An additional TDS at 1% has also been proposed whether or not you make a profit or loss on such transactions. Hence, it is strongly recommended that such transactions be disclosed in the annual income tax returns filing. The limit for TDS would be Rs. 50,000. The provision kicks in from July 1st this year.

All cryptos received as a gift, too, would be taxable. Recently there has been a growing trend where digital currencies like Bitcoin are being gifted during auspicious occasions such as Diwali or Akshaya Trithia. Such transactions will be taxed. Similarly, companies, too, may offer what are called “Air drops”, a marketing technique to generate awareness of virtual assets. These, too, will be under the purview of taxation.

Losses from one virtual asset cannot be set off against income from a different one. For instance, if you make a loss while trading in bitcoin but gained steadily while investing in USDT, a stable coin, you cannot offset the loss in bitcoin with the gain in USDT.

It’s not just the virtual asset but also all applications that are linked to blockchain, the underlying technology that keeps track of all crypto transactions, will also be taxed. One such application is that of Non-fungible token which has been a massive hit across the world. NFTs make it easier to recognise the true owner of a piece of art or any item linked to it. Transactions in NFTs, too, will be taxed.

A small and enterprising percentage of enthusiasts also mines these virtual currencies. There is a cost associated with it. These infrastructure costs cannot be considered as acquisition costs and hence, are not allowed to be set off against any earnings.

Such moves from policymakers help investors to make decisions without any ambiguity. And while starting your journey, it is important that you choose the right crypto platform to trade in these assets. One such exchange is ZebPay which has, over the years, served over 5 million investors. Get started now and diversify your investment portfolio.

The pages slugged ‘Brand Connect’ are equivalent to advertisements and are not written and produced by Forbes India journalists.