Understanding Crypto Taxation in India

Section 115BBH of the Income Tax Act states that the profit earned by exchanging cryptos is subject to 30% plus 4% cess. Section 194S requires a 1% Tax Deducted at Source (TDS) exceeding ₹50,000 within the same financial year on crypto asset transfers.

Private and commercial investors are also taxable while engaging in digital asset transfer.

 All the income generated from crypto investments remains constant, even for short-term and long-term gains. The payment can be of any source, whether capital gains or business; the buying, selling, and swapping can be charged with a flat 30% rate with a 4% tax.

In India, Virtual Digital Asset(VDA) is referred to as cryptocurrency. The provision for Taxation on cryptocurrency, NFT, and VDA was announced by the finance minister under the Budget 2022. 

30% tax will be applicable in India, while the crypto transactions are liable to Taxation. The following activities show that the person engaged with Cryptocurrency India in any of the activities will be taxable.

  • A 1% tax will be applied for spending cryptos to purchase goods or services.
  • Swapping cryptos.
  • Trading crypto using fiat currency.

The other events will also be taxed differently, while the 30% tax rate applies to buying, selling, and swapping cryptocurrency in the Best Crypto Currency Exchange In India. The following trading activities also liable to taxations are as follows.

  • Gifting Cryptos
  • Mining Cryptos
  • Staking Cryptos
  • Receiving airdrops
  • Receiving salary as cryptos

Gifting Cryptos

Section 56 of the Income Tax Act levies provision for the Taxation of gifts of immovable property, cash, and specified movable assets such as shares, jewelry, etc. Under Section 56, the movable assets are also included in the ‘Virtual Digital Asset.’

Exempt from Taxation includes a VDA Gift with a value of up to INR 50,000 from both relatives and non-relatives.

A gift of VDA with a value exceeding INR 50,000 received will be taxable in the hands of the receiver.

Here, the relatives include parents, spouses, or brothers/sisters.

Tax on Airdrops

An airdrop distributes cryptocurrency tokens or coins directly to specific wallet addresses, generally for free. Airdrops are done to increase awareness about the Token and increase liquidity in the early stages of a new currency. 

 Airdrops are referred to as ‘Income from Other Sources’ (IFOS) and are taxed at slab rates [Section 56(2)(x)].

Tax on mining cryptocurrency

The process of verifying and recording transactions on a blockchain network is referred to as mining.

The transactions are verified by a group of nodes or computers over a blockchain network by competing to solve complex mathematical puzzles. The earlier puzzle solver can be rewarded with some cryptocurrency.

This income from mining will be taxed at your regular slab rate, and it will be classified either as:

  • Income from Business
  • Income from Other Sources

Tax on Crypto Staking/Forging

You may have to pay taxes on your earnings while staking cryptocurrency in India. The earning from staking relies on the Annual Percentage Rate (APR) suggested by the validator. For instance, if you stake 100 coins with a 10% APR, you will earn 10% interest yearly.

This income you earn from staking is considered ‘Income from Other Sources’ for taxation purposes and is subject to tax at typical slab rates. You will be liable to pay a 30% Capital Gains Tax, while you will be supposed to sell cryptos.

Sharing your coins to a staking pool or moving assets between wallets is often considered tax-exempt. 

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