Cryptocurrency Taxation in India – Guide to Crypto Taxes in India

What is Cryptocurrency?

Cryptocurrency is a digital form of currency that operates independently of a central bank. It is secured by cryptography, making it nearly impossible to counterfeit or double-spend. The most well-known cryptocurrency is Bitcoin, but there are thousands of others in existence, each with its own unique features and uses.

The underlying technology behind cryptocurrencies is blockchain, which provides a secure ledger for documenting all transactions. The blockchain maintains a chronological record of all transactions, ensuring transparency and security.

One of the main advantages of cryptocurrency is its decentralization. This means that transactions can take place peer-to-peer without the need for intermediaries like banks.

The value of most cryptocurrencies can be highly volatile, making them a risky investment.

Despite the challenges, the popularity of cryptocurrency continues to grow. Many experts believe that cryptocurrencies have the potential to revolutionize the financial industry, offering greater access to financial services for people around the world.

 

Top Cryptocurrencies by Market Cap

Here are some of the most prominent cryptocurrencies based on their market capitalizations:

1. Bitcoin (BTC): The pioneer and most well-known cryptocurrency, Bitcoin has a market cap of approximately $1.37 trillion. Its current price is around $66.63k
2. Ethereum (ETH): Ethereum, known for its smart contract capabilities, has a market cap of about $440.76 billion. Its current price is approximately $3.67k
3. Tether (USDT): A stablecoin pegged to the value of fiat currencies, Tether has a market cap of around $111.29 billion with a fixed price of $1.00.
4. BNB (Binance Coin): BNB, associated with the Binance exchange, has a market cap of about $94.48 billion and a current price of approximately $614.52
5. Solana (SOL): Solana, known for its high-speed transactions, has a market cap of around $79.55 billion with a current price of $177.18.
6. USD Coin (USDC): A stablecoin backed by US dollars, USDC has a market cap of about $33.41 billion and a fixed price of $0.9999.
7. XRP: XRP, developed by Ripple, has a market cap of approximately $28.26 billion and a current price of $0.5111.
8. Cardano (ADA): Cardano’s market cap is around $16.61 billion, and its current price is approximately $0.4655.
9. Shiba Inu (SHIB): SHIB has a market cap of about $14.09 billion with a current price of $0.00002391.
10. Avalanche (AVAX): Avalanche’s market cap is approximately $15.55 billion, and its current price is around $40.80

Remember that cryptocurrency prices can be highly volatile, and investing in them carries risks. Always do thorough research and consider your risk tolerance before participating in the crypto market.

 

How do I Invest in cryptocurrency?

Investing in cryptocurrency involves a few key steps. Here’s a simplified guide to help you get started:

1. Educate Yourself: Before diving into the world of cryptocurrencies, it’s crucial to understand the asset class. Cryptocurrencies can be volatile and have unique risks.
2. Choose a Cryptocurrency Exchange: You’ll need to select a platform where you can buy and sell cryptocurrencies. Popular exchanges include platforms like Coindesk, ZebPay, or Coinbase.
3. Complete KYC Process: Exchanges require a Know Your Customer (KYC) process, where you’ll need to provide identification documents such as your Aadhaar Card and PAN card in India.
4. Add Funds to Your Account: You can transfer funds from your bank account to the exchange using various methods like RTGS, NEFT, or debit/credit cards.
5. Place an Order: Decide on the cryptocurrency you want to buy and place an order. You can start with a small amount; some exchanges allow purchases from as low as Rs.100.
6. Use a Wallet: After purchasing, you’ll store your cryptocurrency in a digital wallet, which can be provided by the exchange or a separate wallet service.
7. Understand the Risks: Remember that investing in cryptocurrencies is risky, and it’s important not to invest more money than you can afford to lose.

Always keep in mind that the value of cryptocurrencies can fluctuate significantly, and it’s essential to do thorough research and consider your financial situation and risk tolerance before investing.

How is Cryptocurrency Taxed in India?

In India, cryptocurrencies are classified as Virtual Digital Assets (VDAs) and are subject to taxation. Here are the key points regarding crypto taxation in India as of 2024:

• Tax Rate: Profits from trading cryptocurrencies are taxed at a rate of 30%, plus a 4% cess.
• Section 115BBH: This section of the Indian tax code governs the taxation on crypto assets.
• No Deductions: Apart from the cost of acquisition, no other deductions are allowed.
• TDS: 1% Tax Deducted at Source (TDS) under section 194S is applicable on the transfer of VDAs, effective from July 1, 2022.
• Filing ITR: When filing your Income Tax Return (ITR) for the financial year 2022-2023, you must report any gains from crypto assets under Schedule VDA.
• No Set-off: Loss from digital assets cannot be set-off against any other income.
• Capital Gains: If you hold cryptocurrencies as investments and sell them, the gains are taxed as capital gains.
• Business Income: If you trade cryptocurrencies, the income is considered as business income.

Which Crypto Transactions Are Liable to Tax in India?

Here’s a comprehensive list of cryptocurrency transactions in India that are subject to tax:

1. Spending cryptocurrencies to purchase goods or services.
2. Exchanging cryptocurrencies for other cryptocurrencies.
3. Trading cryptocurrency using fiat currency such as ₹ (INR).
4. Receiving cryptocurrency as payment for a service.
5. Receiving cryptocurrency as a gift.
6. Cryptocurrency mining
7. Drawing a salary in crypto
8. Staking crypto and earning the benefits of a stake
9. Receiving airdrops

 

Tax on Mining Cryptocurrency

Cryptocurrency mining is the process by which new cryptocurrency coins are created and transactions are verified on a blockchain network. It involves solving complex mathematical problems to validate transactions and add them to the blockchain ledger.

• Tax Rate: Mining income from cryptocurrency is subjected to taxation at a flat rate of 30% based on the fair market value of the cryptocurrency at the time of mining.
• No Deductions: It’s important to note that there is no provision for deductions related to mining expenses, such as electricity or hardware costs.

Tax On Crypto Staking/Forging

Crypto staking is a fascinating concept that allows you to put your digital assets to work while earning passive income.

Staking involves locking up your cryptocurrency holdings to participate in running a blockchain network and maintaining its security.

In return for staking your coins, you earn rewards, typically calculated as a percentage yield. Think of it as the crypto equivalent of putting money in a high-yield savings account.

Staking is possible via the proof-of-stake (PoS) consensus mechanism used by certain blockchains.

Validators (also known as “stakers”) purchase and lock away a specific amount of tokens to participate in the network.

This income you earn from staking will be taxed at 30%. Additionally, when you sell your crypto asset, you will be liable to pay 30% Capital Gains Tax.

In general, transferring your coins to a staking pool or wallet does not typically attract taxes. Additionally, moving assets between wallets is often considered tax-exempt.

Taxes on Crypto Airdrops

Let’s delve into the taxation aspects of crypto airdrops in India

Airdrops refer to the process of distributing cryptocurrency tokens or coins directly to specific wallet addresses, often for free. These airdrops are usually done to increase awareness about a new token and enhance liquidity during the early stages of its launch.

• Airdrops are taxable under the category of Income from other sources.
• If you receive crypto tokens through an airdrop, they will be subject to taxation.
• The value of airdropped tokens is determined based on the fair market value of the tokens on the date of receipt (whether on exchanges or decentralized exchanges).
• These airdrops are taxed at a flat rate of 30%.

Frequently Asked Questions

1. How does cryptocurrency work? Cryptocurrencies use blockchain technology to record transactions on a distributed ledger, ensuring security and transparency.
2. Can cryptocurrencies be converted to cash? Yes, cryptocurrencies can be converted to cash through crypto exchanges or peer-to-peer transactions.
3. Are cryptocurrencies legal? The legality of cryptocurrencies varies by country, with some nations embracing them and others imposing bans or restrictions.
4. What are the risks of investing in cryptocurrency? Risks include market volatility, regulatory changes, technological issues, and security threats like hacking.
5. What is blockchain? Blockchain is the underlying technology of cryptocurrencies, a distributed ledger that records all transactions across a network.
6. Is cryptocurrency secure? While the technology behind cryptocurrencies is considered secure, risks still exist, such as exchange hacks or lost private keys.
7. How are new cryptocurrencies created? New cryptocurrencies are created through a process called an Initial Coin Offering (ICO) or through mining, depending on the cryptocurrency.
8. What is a wallet in cryptocurrency? A wallet is a digital tool that allows you to store, send, and receive cryptocurrencies securely.
9. Can I make money with cryptocurrency? Yes, people can make money through trading, investing, or mining, but it also comes with the risk of losing money due to market volatility.
10. What is a cryptocurrency exchange? A cryptocurrency exchange is a platform where you can buy, sell, or trade cryptocurrencies for other digital currency or traditional currency.
11. How do I store my cryptocurrency? You can store your cryptocurrency in a digital wallet, which can be online, offline, hardware-based, or even paper-based.
12. Can you convert crypto to cash in India? Yes, you can sell your crypto holdings on exchanges and convert them to cash. Ensure you complete the necessary KYC requirements.