Cryptocurrency Tax India How to Calculate Tax on Cryptocurrency- The Coin Leaks

How to Calculate Tax on Cryptocurrency in India [Cryptocurrency Tax India]

There will be a 30% tax on cryptocurrency in India. It may sound like a negative news, but let’s dig in a little deeper and find out what are the facts about cryptocurrency tax in India.

“In the Union Budget 2022, crypto assets have been classified as ‘virtual digital assets’.”

The United States of America treats crypto like a house or a property. The United Kingdom treats crypto like a stock.

Meaning, both the countries treat crypto as a different asset class and take different tax on it based on their existing rules. Whatever be the reason, they definitely charge tax on cryptocurrency

Why is it Important to Tax Cryptocurrency in India?

If we see the trends, every country is planning to put tax on cryptocurrencies one way or the other.

And, it is important. Thinking about why it is important to tax cryptocurrency in India?

Here are some reasons behind it.

  1. More than 2 crore Indians have invested in cryptos
  2. Indian hold more than 40,000 crore in crypto assets

Since there were no rules on cryptocurrency in India till now, Indians had no idea whether investing in crypto is legal or not.

Now that the Indian government will be taxing 30% on cryptocurrency in India, everything will change. But before you go on and invest in crypto assets, let’s understand how this cryptocurrency tax in India will work.

Taxes on Cryptocurrency Around the World the coin leaks

How Cryptocurrency Tax in India will Work?

Remember these 3 points about the tax on cryptocurrency in India, and you are good to go.

  1. There will be a 30% tax on transfer of virtual digital assets

  2. What does that mean? Let’s understand this with an example. But remember, every financial budget is drafted for the upcoming financial year, meaning all the tax rules and laws presented in Union Budget 2022 for cryptocurrency in India will be applicable from 1st of April 2022 onwards.

    If you have sold cryptos and earned profit before this date, then you have to pay tax on it based on your slab rate.

    For example, you have purchased Ethereum worth ₹1 lakh and sell it in a few months, say in July 2022, for ₹1.25 lakh. Then you will have to pay 30% tax on ₹25k profit, which will be ₹7.5K plus surcharge and cess. You need to understand two things here.

    The first thing is you need to pay this cryptocurrency tax in India only on REALIZED gains, meaning you don’t need to pay any tax until and unless you sell your crypto. So, it doesn’t matter whether you hold it for 1 year or 10 years, you are not liable to pay any tax on cryptocurrency until you book the profits.

    Some people must be thinking that they will sell Ethereum, keep their money in the crypto exchange wallet instead of transferring it in the bank, and avoid paying tax on cryptocurrency in India, but this is not the case at all. When you sell Ethereum, you will have to pay tax on cryptocurrency whether you transfer it in your bank or not.

    The second thing is it doesn’t matter when you made the investment, but it matters when you are selling this investment.

  3. You will be taxed on your net profits only

  4. For example, you invest in both Ethereum and Bitcoin. However, when you sell it, Ethereum is in profit and Bitcoin is in loss. You made ₹1 lakh profit on Ethereum while you lost ₹50k on Bitcoin. If you sell both of them in the same financial year, then this is how to calculate tax on cryptocurrency in India.

    ₹1 lakh profit of Ethereum (minus) ₹50k loss of Bitcoin (equals to) ₹50k net profit on cryptos

    Now you have to calculate 30% of this ₹50k net profit to pay cryptocurrency tax in India.

    Remember, the net profit that you have calculated for cryptos can’t be adjusted against any other losses of different asset classes. For instance, if you earned profit in cryptos, but lost in shares, then you can’t reduce this loss from the profits of cryptos.

    Another thing that you need to know is that the net profit is calculated on the basis of the financial year. Once the financial year is over, your calculation is over as well. Suppose you have a loss of ₹50k in cryptos this year, and earned a profit of ₹1 lakh next year, then you can’t carry forward last year’s loss to this year. As per the cryptocurrency tax in India, you will have to bear the loss or gain in that year only when you are selling your cryptos.

  5. The Government of India has signaled every crypto exchange to cut 1% TDS on every sale transaction

  6. The reason behind charging TDS, or tax reduction at source, is that a record of your transactions will be created and shared with the Government.

    For example, you purchased Bitcoin worth ₹1 lakh, and sold it for ₹1.5 lakh. Now when the crypto exchange will pay you for this, they will deduct 1% of ₹1.5 lakh, or ₹1.5k, and deposit it with the Government of India. When you file income tax returns (ITR), then you can take its credit. Meaning, this is not an additional tax.

We think taxing cryptocurrency in India is a good step because with this, one thing is clear that the Government of India won’t take any drastic step like banning cryptocurrency in the future.

Till now, when the Government of India has not decided any tax on cryptocurrency in India, it doesn’t mean that you didn’t have to pay any cryptocurrency tax in India.

For example, let’s say an individual is earning ₹6 lakh per annum, then he/she has to pay tax on cryptocurrency in India as per his/her tax slab, i.e. 5%, while the other individual who comes under 30% tax slab, he/she has to pay 30% cryptocurrency tax in India.

So, no matter what everyone says, there was already a cryptocurrency tax in India based on the individual’s tax slab, but there was no specification on the tax rate.

With this move, the Government of India wants to alert people about carefully investing in cryptos. Once they charge so much tax on cryptocurrency in India, only those people who are financially sound would be able to invest in cryptos.

And, that is how it should be.

If you don’t know the basics of tax on cryptocurrency in India, then it means you are a newbie, or new investor. And, the fact is, crypto may not be right for beginners because there are a lot of risks involved with it. Rather than being concerned about 30% cryptocurrency tax in India, there is a risk that you may lose all your investment.

By defining crypto as an asset class, we can make a few guesses about the Government’s stance.

There is a little bit of clarity about cryptocurrency tax among the people, and it will significantly reduce the political risk involved in cryptos.

However, now that there is a tax on cryptocurrency in India, it is the responsibility of the Government of India to regulate the crypto exchanges. There need to be standard rules for crypto exchanges so that investors are protected.

In the future, we hope that there are proper rules for crypto markets just like the stock markets so that investors are assured of their safety.

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