How will your cryptocurrencies be taxed?

Do note that this information is provided for educational purposes and is NOT legal or financial advice. In this post, I will answer some of the most important questions around crypto taxation in India.

A tax of 30 percent on the income from the transfer of “virtual digital assets” is applicable.

1. How will crypto profits be taxed?The government has defined “virtual digital assets”. The term has a broad definition and includes all types of crypto assets/ currencies such as: Ready money for example, Bitcoin (BTC) Open Blockchain Tokens, for example, Wrapped Asset Token (WRAP) Hush/ privacy coins, for example, Monero (XMR) Application coins, for example, Filecoin (FIL) Security tokens, for example, Exodus Non-Fungible Tokens (NFTs), for example, Crypto Kitties Algorithmic stablecoins, for example, Frax (FRAX) Governance tokens, for example, Uniswap (UNI) Public Blockchain natives, for example, Ether (ETH) Asset-backed tokens, for example, Tether (USDT) Lending / Borrowing cryptos, for example, Aave (AAVE)

This tax is payable on your profit, which is calculated after deducting the “cost of acquisition” that could include the purchase price of the crypto and the gas, transaction fees.

2. Will free cryptos from airdrops, learn and earn schemes, and play-to-earn games be taxed?

Free crypto that you earn from airdrops, learn and earn schemes, and play-to-earn games will be considered as a gift. Under the existing income tax laws in India:

Money received as gifts from relatives (such as a spouse, siblings) is not taxable. Money received as gifts from friends is taxable. If the amount of money gifted to you in a financial year is less than Rs. 50,000 then it will not be taxed. Money received as gifts on your marriage or under will/ inheritance is not taxable. Money received on your birthday, anniversary, etc. is taxable.

Example: You have received 100 ABC crypto (worth Rs. 75,000) from a play-to-earn game. You may be liable to pay tax on this.

So depending on the above conditions, you may have to pay tax on these free cryptos.

3. Will I be taxed even if I don’t sell my crypto?Yes and No.

Suppose you buy crypto and then don’t sell it. Even if the value of your crypto goes up, you will not be taxed till you actually sell the crypto. So this may be good news for HODLers.

But if you get free crypto (from airdrops etc.) then you may have to pay gift tax on it even if you don’t sell it. See Answer 2 above for details on this.

4. How will crypto mining be taxed?Crypto miners may have to pay a 30 percent tax on their profits. They may be allowed to claim a deduction of the “cost of acquisition” — electricity costs, depreciation on mining computers, etc. Further clarity on this is awaited.5. How will crypto staking and lending be taxed?

You may have to pay tax when you sell the crypto that you have earned from staking or lending. Further clarity on this is awaited.

Example: You have staked 100 ABC and received 5 ABC as a staking reward. You may not have to pay any tax. A few months later, you sell the 5 ABC for Rs. 10,000. Now, you may be liable to pay 30 percent tax on this Rs. 10,000 profit.

For the following people, this TDS may apply only if the total amount of crypto transactions is more than Rs. 50,000 in a year:

6. Will crypto exchanges deduct TDS?For most transactions, crypto exchanges will have to deduct 1 percent TDS from July 1, 2022 onwards under the new section 194S of the Income Tax Act. This will ensure that all crypto transactions are recorded and reported to the government.

For others, this TDS may apply if the total amount of crypto transactions is more than Rs. 10,000 in a year.

Individuals or Hindu undivided families (HUF) with total business sales/ gross receipts/ turnover of more than Rs. 1 crore a year. Individual professionals with income over Rs. 50 lakh a year. Individuals or HUF who do not have any income from business or profession.

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