Crypto Tax India: Ultimate Guide 2022

Do you have to pay tax on cryptocurrency in India? Wondering how India's crypto tax works and how the ITD views Bitcoin and other cryptocurrencies? We've covered everything you need to know about crypto tax in India in our ultimate crypto tax guide for 2022.

This guide is regularly updated

Before we start - India's crypto tax rules are in flux. At Koinly, we keep a very close eye on the Income Tax Department's crypto developments and regularly update our guide to keep you informed and tax compliant.

29 June 2022: Updated with new guidance on 1% TDS from ITD.

3 Feb 2022: Welcome to your cryptocurrency tax guide for India!

Is crypto taxed in India?

Yes, cryptocurrency will soon be subject to tax in India. The ITD has released guidance (and more guidance is due to follow soon) on how precisely crypto is taxed in India but, in brief, you'll pay a flat tax of 30% on profits or income from crypto and a a 1% tax deducted at source if your crypto transactions exceed more than 50,000 INR (or 10,000 INR in some cases) in a single financial year - though much of the specifics still haven't been clarified by the ITD and further guidance is due on the 1st of July 2022. We'll update as soon as we know more, but let's dive into what we know about crypto tax in India so far.

How is crypto taxed in India?

Prior to this year, India's government had no official stance on the classification and subsequent taxation of Bitcoin and other cryptocurrencies.

But recently for the first time, the Indian authorities acknowledged the cryptocurrencies in India by classifying them as Virtual Digital Assets (VDAs) and proposing a taxation framework for VDAs.

As of the date of this article, these tax proposals are still in the draft stage and are yet to become law. At the start of July, the tax office is expected to release further guidance to clarify the tax implications of a wide range of crypto transactions.

The current limited crypto tax guidance was announced in the Budget 2022-2033 speech, where India's Minister of Finance advised that all cryptocurrencies including NFTs are to be classified as Virtual Digital Assets.

The key points to note:

• Profit from any virtual digital asset is to be taxed at a flat rate of 30%.
• Profits are seen as income, taxed under section 115 (similar to lottery winnings).
• There is no opportunity to treat cryptocurrency as a capital asset.
• Discounted tax on long term versus short term gains is not an option.
• No deduction, except the cost of acquisition, will be allowed while reporting income from the transfer of digital assets.
• A TDS of 1% is to be charged on payments of virtual assets, above 50,000 INR for individual taxpayers.

The proposed 30% income tax is applicable from 1 April 2022 and the TDS of 1% is applicable from 1 July 2022.

Crypto tax in India

There is no specific Bitcoin tax or cryptocurrency tax in India. Instead, India plans to tax crypto as Income from Other Sources, similar to income from savings bank account interest, fixed deposits, or lottery winnings.

Profits from VDAs such as crypto and NFTs will be taxed at a flat tax of 30%. This rate is the same as India's top Income Tax bracket. The flat tax rate applies to private investors, commercial traders and anyone else who transfers crypto assets in a given financial year.

The 30% flat tax rate will be applicable irrespective of the nature of income, so it doesn't matter if it is investment income or business income. There is also no distinction between short-term and long-term gains. The 30% flat tax applies irrespective of:

• Your individual Income Tax bracket.
• The holding period.
• The nature of the transaction.
• Whether you're a private investor or commercial trader.

When will you pay tax on crypto in India?

There are many instances where you may pay tax on crypto - which still need clarification from India's Finance Minister. However, taxable transactions may include:

• Selling crypto for INR or another fiat currency.
• Trading crypto for crypto, including stablecoins.
• Spending crypto on goods and services.
• Gifting crypto - if you're the recipient of the gift.
• Mining coins is potentially income from other sources.
• Getting paid a salary in crypto.
• Staking rewards.
• Mining tokens.
• Airdrops.

As well as this, there are many potential tax implications from DeFi activities.

DeFi income

While the ITD has not released guidance on DeFi transactions specifically - DeFi, though The new tax regime of cryptocurrency will fall under section 285BA and sub section (k) of IT Act. Profits are likely to be considered income and taxed at a flat Income Tax rate of 30%:

• Earning new crypto tokens through yield farming on lending protocol like AAVE, Compound.
• Earning new liquidity pool tokens, governance or reward tokens.
• Lending your crypto to platforms like Compound to earn interest.
• Earning crypto dividends on platforms like CoinRabbit.
• Referral rewards like Binance Referral.
• Learn to earn campaigns, like Coinbase Learning Center or CoinMarketCap Learning Center.
• Watch to earn platforms like Odysee.
• Browse to earn platforms like Permission.io or Brave.
• Play to earn games like Axie Infinity.
• Shop to earn through browser extensions like Lolli.
• Share public address to earn on platforms like Moon Faucet.

How much tax will you pay on crypto in India?

Under the proposed you'll pay a flat 30% tax on crypto profits and income, you may also need to pay a 1% TDS tax on crypto transactions - though the specifics around the TDS tax are still very unclear.

1% TDS on crypto assets

According to the Budget 2022 announcement, a 1% Tax Deducted at Source (TDS) will be imposed on crypto transactions over a certain threshold.

The ITD released more guidance on this on the 22nd of June 2022. In summary, here's what we now know:

• The 1% TDS will apply to transactions from the 1st of July 2022.
• The 1% TDS will apply only when the aggregate value of the transaction(s) exceed 50,000 INR for specialized individuals and 10,000 INR in other cases. In other words, if you're transacting with more than 50,000 INR in a single financial year, the 1% TDS will apply.
• If you're transacting via an exchange - the exchange is liable to deduct TDS.
• In a P2P transaction - both the buyer and seller may be liable to deduct TDS.
• Taxpayers will need to report any TDS in their TDS statement along with challan number. Form 26Q now has provisions for reporting these transactions.
• You'll need to pay any TDS to the central government within 30 days of the deduction being made.

The primary reason the 1% TDS of has been introduced is to capture crypto transaction details and keep a track of investments being made in crypto assets by investors. Although extreme, by imposing a 1% tax on investments, the ITD ensures there is minimal tax avoidance or other criminal activities.

Crypto losses

It's bad news for investors when it comes to losses from crypto investments. Because crypto is not classified as an asset in India but rather seen as income, loss from digital assets cannot be offset against any other gains or income. Indian crypto investors are also not allowed to claim crypto related expenses. The one exception is the cost of acquiring your crypto asset, which can be claimed when calculating your gains and losses.

Tax free crypto India

Wondering when Bitcoin is tax free in India? What about other cryptocurrencies? There are a couple of instances where you won't pay tax on your crypto in India.

You won't pay tax on your crypto in India when you're:

• HODLing crypto.
• Transferring crypto between your own wallets.

Tax on lost or stolen crypto in India

While the Finance Minister has offered no clear guidance on lost and stolen crypto, it can be assumed however, that India's Income Tax Department wont offer a sympathetic ear. Tread carefully.

How are gifts of crypto taxed?

India's proposed crypto tax rules take a blanket approach across the board, and that includes how the ITD may tax crypto gifts. Recipients of a virtual asset gift - including an NFT - are liable to pay Income Tax on the value of their gift, at a flat rate of 30%. However, there are a couple of exceptions to this rule:

• If the gift amount is under Rs. 50,000 (in a single financial year, not per gift), then this would be tax free.
• Gifts to family are tax free. Gifts received from parents or from siblings and so on are exempted from tax. Similarly, gifts received as a wedding gift or via a will or inheritance are also exempted from Income Tax - irrespective of the amount.

How to calculate tax on crypto

You know you'll pay a flat 30% tax on your profits, but how do you calculate your profits? You need to start by figuring out your cost basis.

Your cost basis is how much it cost you to buy your crypto, plus any allowable transaction fees, in INR.

Crypto cost basis method India

A cost basis method dictates which assets you sold and when - which can have a big effect on your gains and losses. In general, the first in, first out or average cost basis accounting method are the most common worldwide.

At the time of writing, the ITD hasn't clarified any approved cost basis methods for VDAs - we'll update this as soon as they release more guidance.

Will you pay tax when you buy crypto in India?

While you don't currently pay tax when you buy crypto with fiat currency... you will once the 1% TDS is introduced.

Do you pay tax when you sell cryptocurrency in India?

Yes - you'll pay tax whenever you sell cryptocurrency in India, with no exceptions.

Do you pay tax when transferring crypto?

The ITD has not offered specific guidance on this, but we can assume that provided there is no profit involved in moving crypto that you own from one wallet to another, that 30% Income Tax would not apply.

How are airdrops and forks taxed in India?

The ministry has not offered specific guidance on this, but we can assume that where a profit is involved, a 30% Income Tax will apply.

Crypto gifts and donations tax

Gifting crypto in India is taxed - although there are a couple of exceptions if you gift under a certain amount within a year or if you gift to friends and family members for specific occasions like as a wedding gift. It's important to note it isn't the person giving the gift that is liable for tax, but the recipient.

Mining and staking tax

The ITD hasn't clarified the specifics around tax on mining and staking as part of a consensus mechanism yet - but with the harsh stance taken on crypto tax in general, it is likely that the 30% Income Tax will apply both on receipt and when you later sell, swap or spend mined tokens and staking rewards.

How is DeFi taxed?

Unsurprisingly, the ministry hasn't released any guidance on the potential tax implications of DeFi transactions. But we can infer the likely tax implications from the current guidance.

When do you need to report your crypto taxes ?

The financial year (FY) in India runs from April 1st to March 31st the following year. For example, the most recent financial year was April 1st 2021 to March 31st 2022. This will be the financial year you'll be reporting on when you file your taxes this year.

The deadline to file taxes for taxpayers who are not subject to audits is July 31st - although this has often previously been extended by the ITD. At the time of writing, the tax deadline for the 2021-2022 FY (for taxpayers not subject to audits) is the 31st of July 2022. For taxpayers undergoing audit, the deadline is October 31st 2022.

How do you file your crypto taxes with the ITD?

You'll file your crypto taxes using the Income Tax Return AY 2022-23 ITR-2 Form.

At the time of writing, the AY 2022-23 ITR-2 form doesn't have a dedicated space to report crypto gains and income.

The 2022 Finance Act explicitly states that crypto profits must be declared and subjected to 30% flat tax effective from April 1st 2022. This falls just outside the 2021-2022 FY you'll be reporting on.

However, the conservative approach to avoid an unwelcome audit from the ITD is to report your crypto gains and income. You should consult with an experienced crypto accountant for specific advice, but you could report crypto activity in Schedule OS, line 2s of the ITR-2 AY 2022-23 Form until such a time that the ITD release a dedicate crypto tax reporting form or update the ITR-2 Form.

How to calculate your crypto taxes

Calculating your crypto taxes so you can report them - especially if you trade at volume - is time consuming. You can do it all manually, or you can use a crypto tax calculator like Koinly to save you hours.

If you want to calculate your crypto taxes manually, follow these steps:

1. Identify all your taxable crypto transactions for the entire financial year you're reporting on.
2. Identify which transactions are subject to Income Tax.
3. Identify the cost base for each transaction .
4. Arrive at a total of income earned in INR from cryptocurrency.
   

How to use a crypto tax app like Koinly

Don't get stuck in the busywork. Don't get it wrong. Don't rely on your accountant to know where to look. Use Koinly to generate your crypto tax reports. Here's how easy it is:

1. Sign up for a FREE Koinly account.

It only takes a minute!

2. Select your base country and currency.

In this instance, India and INR.

3. Select your accounting method.

Koinly supports many cost basis methods including FIFO, LIFO, HIFO and ACB.

4. Connect Koinly to your wallets, exchanges or blockchains.

Koinly integrates with more than 300 crypto exchanges, wallets and blockchains. (See all) If you can't find yours, let us know - we're always adding more.

5. Let Koinly crunch the numbers. Make a coffee.

Koinly will calculate your cost basis for each crypto asset like ETH, ADA and Bitcoin and taxes them accordingly. Koinly will calculate each capital gain or loss from your disposals, as well as your crypto income and expenses.

6. Ta-da! Your data is collected and your full tax report is generated!

Head to the tax reports page in Koinly and check out your tax summary.

7. To download your crypto tax report, upgrade to a paid plan.

Download what you need, when you need it.

8. Send your report to your accountant

Use the generated file to complete your Income Tax Return or send it over to your accountant. Job done.

Can the Income Tax Department (ITD) track crypto?

Yes - it's likely the ITD knows about your crypto already. The ITD can request crypto exchanges to share KYC (know your customer) data to ensure tax compliance. As well as this, the 1% TDS is going to make it much easier for the ITD to track each individual taxpayers' assets. Though it can be tempting to avoid crypto tax - the penalties are severe. Tax evasion is a criminal offence in India and the penalties range from steep fines to imprisonment depending on the severity.

The information on this website is for general information only. It should not be taken as constituting professional advice from Koinly. Koinly is not a financial adviser. You should consider seeking independent legal, financial, taxation or other advice to check how the website information relates to your unique circumstances. Koinly is not liable for any loss caused, whether due to negligence or otherwise arising from the use of, or reliance on, the information provided directly or indirectly, by use of this website.