Millions of Indians have nested their eggs in cryptocurrencies. The credit goes to a rapid increase in the value of Bitcoin.
Millions of Indians showed interest in cryptocurrencies to achieve their financial dreams during the COVID-19 pandemic. Their income increased by manifolds.
This grabbed the attention of the Central Government, RBI (Reserve Bank of India), and the Income Tax Department of India. The government has introduced a taxation policy to regulate cryptocurrencies.
Various types of taxes have been imposed. The entire Indian cryptocurrency community is busy finding loopholes for relief from this hefty financial crackdown on their gains.
You will have to learn about some essential concepts explained below:
How Your Income From Crypto Becomes Taxable In India?
- Sale and purchase of crypto.
- Transactions involving cryptocurrencies.
- Gains from cryptocurrency.
- Cryptocurrency received as a gift.
- Expenditure or allowance.
- The income you earn from the transfer of VDA (Virtual Decentralized Asset).
- Transfer of cryptocurrency.
Also Read, 9 Terms You Must Learn Before Investing In Cryptocurrency
Are Various Taxes Applicable To Cryptocurrency In India?
The Central Government of India charges many taxes. All these taxes apply to the crypto transactions listed above.
Take a good look at the list of taxes on cryptocurrency in our country.
- Sales tax
- 1% TDS (Tax Deducted on Crypto).
- Gift Tax
- 28% GST (Goods and Services Tax).
- 30% Capital Gains Tax
Steps To Avoid Tax Payment On Income From Crypto In India
All crypto enthusiasts in India want to know about it. They are constantly exhausting Google and other search engines with queries about it.
Nirmala Sitharaman, The Finance Minister of India, imposed a flat 30% tax on all types of gains from the sale of VDAs (Virtual Decentralised Assets). This includes cryptocurrencies too. She announced it during the Union Budget Session of 2022.
The minister also declared 1% TDS (Tax Deducted At Source) on all cryptocurrency transactions.
The Indian cryptocurrency community has noticed some loopholes in the bill. DEX (Decentralised Exchanges) like PanCakeSwap and Uniswap and P2P (Peer-to-Peer) transactions can help avoid taxes on crypto in India.
Is this going to work? Are these methods risk-free? These are two-million-dollar questions.
DEX stands for Decentralised Exchanges. Decentralized crypto exchanges do not require KYC.
The element of complexity in the roots of these decentralized tools and exchanges is hard to crack. The entire risk is borne by the investor only.
Only you are responsible for everything.
Also Read, Is Cryptocurrency A Good Investment? Let’s Decode it!
What Happens After You Convert Your Crypto Gains To FIAT?
You will still have to pay your share of the tax. The income tax department of India already knows about the possibility of these tricks.
The trick could work in traders’ and investors’ favor for some time. However, sooner or later, the government of India will take care of this trick.
This could be a risky trick from a financial perspective. Using DEX may not work in the long run because crypto is not legal tender despite introducing a relevant taxation program.
Process To Report Cryptocurrency on Your Taxes In India:
You can report income from crypto on your taxes using one of the ways mentioned below:
- Offline
- Online
You will need the following set of documents for this purpose:
- The proof of income.
- Form 26AS.
- Form 16A.
- PAN Card.
- Aadhar Card.
- Capital Gains Statement.
- Bank Account Details.
Do not forget to report your losses and exemptions. The government of India is not in the mood to spare your losses in crypto. You may not be allowed to offset your losses.
What If You Avoid Tax Payment On Crypto In India?
Do not make this mistake. Be wise and be in the good books of your government and the tax department in India.
There is a list of consequences for failing to file an ITR and report income from anything in India. The list includes the following:
- hefty financial penalties.
- Legal proceedings against you.
- 1% percentage monthly interest.
- Late filing fee.
- You may be ineligible to carry forward or offset certain losses.
- Jail term for two months to seven years.
We advise you to be wise and report your crypto income because crypto is not a legal tender yet.
Disclaimer
The information given in this content should not be considered legal, financial, or tax-related advice from any perspective.
We advise you to talk to an experienced tax planner familiar with taxation practices and cryptocurrency to help you make the right choices and decisions to move in the right direction.
FAQs
You will have to face several penalties if you don’t pay crypto tax in India. The list includes but is not limited to late fees of up to or more than 200 INR Per Day, a 1% monthly interest charge for between RS1,000 to RS5,000, 7 years of jail up to 7 years, a fine of 50% to 200% for non-payment of crypto tax in India.
All Indian investors paying 30% tax on their crypto gains regularly must pay their TDS. You will have to settle both tax liabilities individually. You can claim the difference between the two as a refund while filing your ITR (Income Tax Return) if the tax amount owed is less than the tax amount deducted.
Crypto tax is automatically deducted in the form of TDS by Indian exchanges. But individuals that trade on foreign exchanges must deduct their TDS manually and file their TDS returns.
Various types of income tax for cryptocurrency in India are levied. A 30% income tax is levied on income earned by transferring Virtual Digital Assets including NFTs. At least 1% TDS is also deducted in the form of tax by Indian exchanges. Even gifting crypto to someone is also taxable. You can set off your long-term losses against long-term capital gains. But income tax laws do not allow it for income that you earn from the transfer of VDAs. The duration of assets held is also taken into account.
1% TDS (Tax Deducted On Source) on Cryptocurrency in India is a crucial taxation mechanism. It ensures that taxes are levied at the source of income. It has come into force with the introduction of budget 2022 in India. Therefore, 1% TDS and 30% tax on all crypto gains are mandatory for investors.
Your crypto income becomes taxable through the sale and purchase of crypto, crypto gifts received, crypto transfer, income earned from the transfer of VDAs and NFTs, expenditure, allowance, and crypto transactions and gains.
Yes! You can convert your crypto gains to FIAT. But you cannot avoid paying tax on your crypto gains. The Central Government of India knows about the possibility of this trick’s use by investors.
You can report crypto on your taxes in India online as well offline. You will need proof of income, form 26AS, form 16A, PAN Card, Aadhar card, capital gains statement, and bank account details. Make sure you report your losses and exemptions.
The consequences of avoiding tax payments on crypto in India are hefty financial penalties, legal proceedings against you, 1% percentage monthly interest, a late filing fee, ineligibility to carry forward or offset certain losses, and a jail term of two months to seven years.