Cryptocurrency investors in India are gearing up for the intricacies of tax filing as the deadline for Income Tax Return (ITR) filing approaches. While navigating the taxation of crypto assets can be daunting, compliant exchanges in India have collaborated with leading tax solution providers to streamline the process.
The Finance Act 2022 brought crypto assets under the purview of taxation, categorizing them as Virtual Digital Assets (VDAs) under the Income Tax Act, 1961. Section 115BBH of the Act stipulates a flat income tax rate of 30% on any gains arising from VDA transfers. Taxable events include converting digital assets to fiat currency, trading between different types of VDAs, or using VDAs for purchases.
It’s essential to note that income received in the form of VDAs as part of salary falls under standard income tax slabs, not Section 115BBH. However, gains from subsequent VDA transactions are subject to the 30% tax rate.
Calculating the tax liability is straightforward, with a flat 30% tax applied uniformly to all investors. Additionally, a 1% Tax Deducted at Source (TDS) is applicable to VDA transfers, effective from July 1, 2022. Exchanges are responsible for deducting TDS on sell transactions, while buyers must adhere to TDS obligations in peer-to-peer transactions.
Taxpayers can offset the 1% TDS deduction against their 30% tax liability on VDA income. Reporting gains from crypto and other VDAs is mandatory while filing income tax returns, with the deadline set for July 31, 2023.
Attempting to circumvent crypto taxes through foreign exchanges is not a viable solution, as non-compliance with tax regulations can lead to penalties and legal consequences. Investors should remain diligent in reporting transactions across exchanges and seek expert advice for compliance.
Key Considerations for Investors:
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Taxation on Gifts and Airdrops: Gifts or airdrops exceeding INR 50,000 are taxed at a flat rate of 30%.
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Taxation on Mining and DeFi Transactions: Crypto mining income is treated as business income, taxable at 30%. DeFi transactions are subject to regular tax slabs.
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Taxation on NFTs: Profits from Non-Fungible Tokens (NFTs) sales are taxed at a flat rate of 30%.
