Following Donald Trump’s victory in the US presidential elections on November 5, 2024, Bitcoin, the world’s largest cryptocurrency, has surged by more than 30%, reaching its highest-ever price. This spike in Bitcoin’s value has resulted in substantial gains for investors. However, Indian crypto investors looking to book profits from this surge should be aware that taxes on cryptocurrencies, or virtual digital assets (VDAs), are structured differently than those on traditional investments like stocks and mutual funds.
In India, cryptocurrency trading is subject to two primary forms of taxation that every investor needs to understand:
1. TDS at 1% for VDA Transfers
Under Section 115BBH of the Income Tax Act of 1961, India imposes a 1% tax deducted at source (TDS) on the transfer of virtual digital assets (VDAs), including Bitcoin. This applies to transactions exceeding ₹10,000 (or ₹50,000 in certain specified cases) within a financial year. The TDS is automatically deducted by the exchange at the time of the transaction, so investors don’t have to worry about filing additional paperwork for this step.
Abhishek Soni, CEO and Co-founder of Tax2win, explains: “The 1% TDS applies to cryptocurrency transactions and is deducted directly by the exchange during the transaction process. This eliminates the need for extra paperwork.”
2. Flat 30% Tax on Cryptocurrency Gains
Since the financial year (FY) 2022-23, India has introduced a 30% flat tax on profits from cryptocurrency transactions. This is irrespective of the investor’s income bracket. Whether the gains are short-term or long-term, they are taxed equally, with no preferential treatment for long-term capital gains, as is the case with traditional assets like stocks and mutual funds.
The introduction of the new tax regime also led to the inclusion of Schedule – Virtual Digital Assets (VDA) in Income Tax Returns (ITR) forms, which specifically requires investors to report any gains from cryptocurrency and NFTs.
This means that if you’ve sold Bitcoin at a profit following its recent surge, you’ll be liable to pay a 30% tax on those gains. The same applies for other digital assets, including altcoins, NFTs, or any other form of virtual currency.
3. No Offsetting of Losses
Another crucial aspect of crypto taxation in India is that losses from cryptocurrency sales cannot be offset against gains from other VDAs or other types of income, such as income from salary or business profits. In addition, unutilized losses from cryptocurrency transactions cannot be carried forward to subsequent financial years to offset future gains. This rule eliminates the possibility of tax relief for investors who may have incurred losses in prior trades.
4. Taxable Crypto Transactions
It is important for investors to remember that all cryptocurrency-related activities are taxable. Whether you are trading crypto, mining, staking, receiving crypto as a gift, or earning from airdrops, these transactions are all subject to tax. The only allowable deduction is the cost of acquisition—the price you paid to acquire the cryptocurrency.
Crypto gifts are also taxable. If you receive cryptocurrency as a gift, the recipient will be liable for tax on the fair market value of the gift received. Similarly, rewards from staking or mining crypto are considered taxable income.
Key Takeaways for Indian Crypto Investors
As Bitcoin continues to rise, many Indian investors are likely contemplating taking profits. Before making any moves, it’s critical to consider the tax implications:
- 1% TDS will be automatically deducted by exchanges on transactions above ₹10,000 (₹50,000 in specific cases).
- 30% tax will apply to all cryptocurrency gains, with no differentiation between short-term and long-term gains.
- Losses cannot be offset against other income, nor can they be carried forward to subsequent years.
- All crypto transactions—including gifts, mining, staking, and airdrops—are taxable in India, with no deductions allowed except for the cost of acquisition.
While the tax burden may seem hefty, especially with no offsetting of losses, investors should be mindful of these rules when making transactions or considering their tax filing for the year. Consulting with a tax advisor or using crypto-specific tax software can help ensure compliance and optimal tax planning.
As the cryptocurrency market continues to evolve, it’s likely that Indian tax laws will further adapt, but for now, staying informed about these key regulations is crucial for anyone involved in the digital asset space.
Disclaimer: The views and recommendations made above are those of individual analysts, and not of Business Headline. We advise investors to check with certified experts before taking any investment decisions.
