How is income from crypto taxed in India
What's the story
Cryptocurrency has become a buzzword in India's financial landscape, attracting both seasoned investors and novices alike.
As this digital currency grows in popularity, it's crucial for Indian investors to understand the tax liabilities that come with cryptocurrency transactions.
This article will demystify those tax liabilities in a simple way, helping you navigate your cryptocurrency investment journey with ease.
Tax liabilities
Know your tax liabilities
The Indian Income Tax Department classifies cryptocurrency income under 'Income from Other Sources.' Hence, any gain or profit you earn from trading or investing in cryptocurrencies is subject to tax.
Currently, there is a flat 30% tax on gains arising from cryptocurrency transactions. Notably, this rate applies irrespective of your income slab or the holding period of the cryptocurrency.
Deductions
No deduction except cost of acquisition
The only permissible deduction when determining your taxable income from cryptocurrencies is the cost of acquisition.
In simple terms, you can subtract the amount you initially paid to purchase the cryptocurrency from the price at which you sold it to ascertain your gain.
You cannot deduct expenses such as internet charges or the cost of hardware bought specifically for mining.
TDS implications
TDS on crypto transactions
Effective July 1, 2022, a 1% Tax Deducted at Source (TDS) will be levied on every transaction exceeding ₹10,000 in a financial year, pertaining to cryptocurrencies.
For non-individuals such as Hindu Undivided Family (HUF) or firms, this threshold is set at ₹50,000.
This TDS rate is imposed to monitor transactions, but please note that it is not your total tax liability.
Reporting
Reporting and compliance
All cryptocurrency transactions need to be reported on your annual tax return, under Schedule CG for capital gains or Schedule OS for other sources.
Not reporting them can lead to penalties and interest on unpaid taxes.
Keeping detailed records of all transactions, including dates, transaction amounts in ₹ (using the exchange rate at that time), and details of buyers and sellers, is crucial to comply with Indian tax laws.