Cryptocurrency Taxation in India: What You Need to Know

Cryptocurrency has gained significant popularity in India, but its taxation remains a complex and evolving area. If you’re investing in or trading cryptocurrencies, it’s crucial to understand the tax implications to stay compliant. Here’s what you need to know:

1. Taxability of Cryptocurrency

In India, cryptocurrencies are treated as virtual digital assets (VDAs) under the Income Tax Act. Any income from the transfer of VDAs is taxable at a flat rate of 30%, plus applicable surcharge and cess. This high tax rate reflects the government’s cautious approach toward crypto transactions.

2. Tax Deducted at Source (TDS)

Starting July 1, 2022, a 1% TDS is applicable on the transfer of cryptocurrencies if the transaction value exceeds ₹50,000 in a financial year. This applies to both buyers and sellers, ensuring transparency and tracking of crypto transactions.

3. Reporting Crypto Income

All income from cryptocurrency transactions must be reported under the head “Income from Other Sources” or “Capital Gains”, depending on the nature of the transaction. Failure to report crypto income can lead to penalties and scrutiny by tax authorities.

4. Loss Set-Off Not Allowed

One of the most challenging aspects of crypto taxation is that losses from cryptocurrency transactions cannot be set off against other income. For example, if you incur a loss in crypto trading, you cannot use it to reduce your taxable income from salary or business.

5. GST on Cryptocurrency

The GST Council has clarified that cryptocurrencies are subject to 18% GST on services like trading fees, wallet charges, and mining activities. However, the GST treatment of crypto transactions is still under discussion.

Conclusion

Cryptocurrency taxation in India is complex and requires careful planning. If you’re a crypto investor or trader, it’s essential to maintain detailed records of your transactions and seek professional advice to ensure compliance. At E Tax And GST India, we specialize in cryptocurrency tax planning and can help you navigate this challenging landscape.