There are a number of reasons why people might find it challenging to comprehend the Indian taxation system around Cryptocurrencies. The intricate and dynamic nature of crypto tax in India laws and regulations is one of the primary causes. India has a complicated system of laws and rules that make it challenging for the average person to understand how taxes are governed around cryptocurrencies. Another reason is that the new tax policy implementation lacks transparency and consistency. Taxpayers may become confused and uncertain as a result of tax officials’ frequent use of significant discretion in interpreting and enforcing tax laws in India. It may be challenging for taxpayers to comprehend their tax liabilities and adhere to tax regulations as a result of this lack of consistency and transparency. Plus, numbers and big lengthy calculations can be a real headache for you if you are not from a finance background in terms of education.
The new taxation scheme that was introduced in 2022 to tax the income from the transfer of Virtual Digital Assets (VDAs), the definition of which includes both Non-Fungible Tokens (NFTs) and Cryptocurrencies, can be really intimidating to understand. So let us breakdown this article into two sub-sections:
- Which activities related to crypto will be taxed
- Which activities related to cryptos will not be taxed
So without wasting any further time let us dive straight into the article.
All these events are taxable under the new taxation scheme for cryptocurrencies:
- Converting your cryptocurrencies to the INR.
- Selling one of your cryptocurrencies to buy another cryptocurrency.
- Using crypto to buy goods and services from a merchant.
Following are the events that will not be taxed under the taxation scheme for Virtual Digital Assets (VDAs):
- Getting paid using cryptocurrencies.
- Airdrops
- Staking rewards
- Getting new coins from a hard fork
- Receiving gifts worth less than ₹50,000/-
- Mining Crypto
How much Tax am I obliged to pay?
Suppose a person buys Ethereum worth ₹1 Lakh in total and sells it for ₹1.5 Lakh. Likewise, let’s assume he also buys Bitcoin of ₹10k and makes a loss of ₹2k on selling it for ₹8k. In this entire process, he will have to pay a tds on cryptocurrency of 1% on the total amount of ₹1 Lakh which he paid while buying Ethereum (taxed on any transaction greater than ₹50k) which he will be able to re-claim upon paying tax. He will finally have to pay a flat 30% tax on the gains made on ₹50k (profit from Ethereum) and ₹0 on losses from Bitcoin. Additionally, the person may have to pay a surcharge and cess.
Calculating all these taxes and maintaining the balance sheet can be really difficult for anyone which is why you should use Binocs which helps to automate this whole process. It dashboards the breakdown of the taxes using very intuitive graphs and charts. Moreover, using Binocs you can dodge keeping a record of which activity is taxed and how much.
