How will your crypto be taxed?
India has announced plans to start taxing income from digital assets earlier this year, while laying out plans for the launch of its own digital currency. The government has unveiled a 30% tax on the sale of crypto assets in a move that clarifies the regulation and tax treatment of cryptocurrencies after months of uncertainty over their legal status in the country. The 2022 budget thus removed most of the FUD (Fear, Uncertainty, and Doubt) from the crypto industry.
In this article, I will answer some of the most important questions regarding crypto taxation in India.
Note that this information is provided for educational purposes and does NOT constitute legal or financial advice.
1. How will crypto profits be taxed?
The government has defined “virtual digital assets”. The term has a broad definition and includes all types of crypto-assets/currencies such as:
- Cash e.g. Bitcoin (BTC)
- Open Blockchain Tokens, for example, Wrapped Asset Token (WRAP)
- Hush/privacy coins, e.g. Monero (XMR)
- Application Coins, e.g., Filecoin (FIL)
- Security tokens, for example, Exodus
- Non-fungible tokens (NFTs), e.g. Crypto Kitties
- Algorithmic stablecoins, for example, Frax (FRAX)
- Governance tokens, e.g. Uniswap (UNI)
- Natives of the public Blockchain, for example, Ether (ETH)
- Asset-backed tokens, e.g., Tether (USDT)
- Lend/Borrow cryptos, e.g. Aave (AAVE)
A 30% tax on income from the sale of “virtual digital assets” is applicable.
This tax is payable on your profits, which is calculated after deducting the “acquisition cost” which could include the Buying price crypto and gasoline, transaction fees.
2. Will free airdrop cryptos, learning and earning programs and play-to-win games be taxed?
The free crypto you earn from airdrops, learn-and-win programs, and play-to-win games will be considered a gift. Under the income tax laws in force in India:
- Money received as a gift from relatives (such as a spouse, siblings) is not taxable.
- Money received as a gift from friends is taxable.
- If the amount of money offered to you during a fiscal year is less than Rs.50,000 then it will not be taxed.
- Money received as a gift on your marriage or under will / inheritance is not taxable.
- The money received on your birthday, anniversary, etc is taxable.
So, depending on the above conditions, you may have to pay tax on these free cryptos.
Example: You received 100 ABC crypto (worth Rs. 75,000) from a play-to-earn game. You may be liable for tax in this regard.
3. Will I be taxed even if I don’t sell my crypto?
Yes and no.
Suppose you are buying cryptos and not selling them. Even if the value of your crypto increases, you will not be taxed until you sell the crypto. So this can be good news for HODLers.
But if you get free crypto (from airdrops, etc.), you might have to pay a gift tax even if you don’t sell it. See answer 2 above for more details on this.
4. How will crypto mining be taxed?
Crypto miners may have to pay a 30% tax on their profits. They may be allowed to claim an “acquisition cost” deduction – electricity costs, depreciation of mining computers, etc. Clarifications on this are awaited.
5. How will crypto staking and lending be taxed?
You may have to pay a tax when you sell the crypto you have won staking or lending. Clarifications on this are awaited.
Example: You wagered 100 ABC and received 5 ABC as wagering reward. You may not need to pay any tax. A few months later, you sell the 5 ABCs for Rs. 10,000. Now, you might be required to pay 30% tax on those rupees. 10,000 profits.
6. Will crypto exchanges deduct TDS?
For most transactions, crypto exchanges will be required to deduct 1% TDS from July 1, 2022 under the new Section 194S of the Income Tax Act. This will ensure that all crypto transactions are recorded and reported to the government.
For the following persons, this TDS may apply only if the total amount of crypto transactions is greater than Rs. 50,000 in one year:
- Hindu undivided individuals or families (HUF) whose total sales/gross receipts/turnover is above Rs. 1 crore per annum.
- Individual professionals with an income above Rs. 50 lakh per annum.
- Individuals or HUF who have no business or professional income.
For others, this TDS may apply if the total amount of crypto transactions is greater than Rs. 10,000 in one year.
7. Will salaries paid in crypto be taxed?
Yes. Your crypto salary may be subject to a 30% tax. And since no deductions will be allowed, taking crypto salaries might not be a good idea anymore.
8. Do I have to pay taxes even if I use a decentralized exchange (DEX) like Uniswap?
A DEX like Uniswap will obviously not deduct any TDS. But you will still have to pay taxes on your crypto profits. If you don’t, then it’s tax evasion gate heavy sentences when you get caught.
9. Do I have to pay taxes even if I use a foreign crypto exchange like Binance?
Foreign crypto exchanges will not deduct any TDS. But you will still have to pay taxes on your crypto profits. If you don’t, then it’s tax evasion and door heavy sentences when you get caught.
10. Do I have to pay taxes even if I use a peer-to-peer marketplace like LocalBitcoins?
Yes, you still have to pay taxes on your crypto profits. If you don’t, then it’s tax evasion and door heavy sentences when you get caught.
11. What if I gift crypto to a friend?
If it’s your friend’s wedding, there’s no gift tax to pay. Otherwise, your friend might be required to pay a tax on those gifted cryptos. See answer 2 above.
Rohas Nagpal is the author of the Future Money Playbook and chief blockchain architect of the Wrapped Asset Project. He is also a retired amateur boxer and hacker. You can follow him on LinkedIn.
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