Taxation on Crypto in India

Updated on : Feb. 25, 2023 - 2 p.m. 17 min read.

The world of cryptocurrency has been expanding at an unprecedented pace in recent years, and India is no exception. With more and more people investing in digital currencies like Bitcoin, Ethereum, and Ripple, it's essential to understand the taxation on crypto in India and other related regulations. The Indian government has recently made some significant changes to its stance on cryptocurrency, and it's crucial to stay up-to-date to avoid any legal issues. As a specialized assistant in digital marketing, I have seen the rise of crypto in India and how it's changing the landscape of the financial industry. In this article, we'll explore the taxation regulations around crypto in India and what investors need to know to stay compliant with the law. So, whether you're a seasoned crypto investor or just getting started, read on to learn more about this exciting and rapidly evolving market.

Cryptocurrencies are based on blockchain technology, which is a decentralized ledger that records transactions in a secure and transparent manner. Unlike traditional currencies, cryptocurrencies are not backed by any physical commodity or government guarantee.

Cryptocurrency refers to a digital or virtual currency that uses encryption techniques to regulate the generation of units of currency and verify the transfer of funds. Cryptocurrencies are decentralized and operate independently of central banks and governments.

How much tax on Cryptocurrency?

Cryptocurrencies, including Bitcoin, Ethereum, and others, have gained significant popularity in India, and the Indian government has been taking steps to regulate their use and taxation. Here are some key points regarding the taxation of cryptocurrency in India:

Classification of cryptocurrency: In India, cryptocurrency is currently not recognized as a legal tender, and it is not considered as currency or securities either. The Reserve Bank of India has prohibited banks and other financial institutions from dealing with or providing services to any individuals or businesses dealing with cryptocurrencies.
Taxation of cryptocurrency transactions: Despite not being recognized as legal tender, cryptocurrency transactions are still subject to taxation. The Income Tax Act considers cryptocurrency as an asset or property, and any gains from the sale or transfer of cryptocurrencies are taxed as capital gains. The tax rate for short-term capital gains (holding period less than 36 months) is the same as the individual's applicable income tax slab rate, while for long-term capital gains (holding period more than 36 months), it is 20%.
Taxation of mining activities: Cryptocurrency mining is also subject to taxation in India. Any income earned from mining activities is considered as business income, and it is taxed at the individual's applicable income tax slab rate.
Reporting requirements: Individuals and businesses dealing with cryptocurrencies are required to report their transactions and gains from them in their income tax returns. Non-compliance with these reporting requirements can result in penalties and fines.
GST on cryptocurrency transactions: The Goods and Services Tax (GST) is not applicable to cryptocurrency transactions in India as cryptocurrency is not considered as currency or securities.

Tax on income from Cryptocurrencies [Section 115BBH]

In India, Section 115BBH of the Income Tax Act, 1961, provides for a special tax regime for income from cryptocurrencies. This section applies to resident individuals who have income from the transfer of cryptocurrencies or from mining activities related to cryptocurrencies.

Under Section 115BBH, the tax rate for income from cryptocurrencies is fixed at 30%. This means that irrespective of the individual's income tax slab rate, the income from cryptocurrencies will be taxed at a flat rate of 30%.

It is important to note that Section 115BBH applies only to income from cryptocurrencies and not to gains from the sale or transfer of cryptocurrencies, which are taxed as capital gains under the regular provisions of the Income Tax Act.

Individuals who have income from cryptocurrencies and fall under the purview of Section 115BBH are required to report their income and pay taxes on it. Failure to comply with these reporting requirements can result in penalties and fines.

It is also important to stay updated on the latest developments and regulations related to cryptocurrency taxation in India, as the Indian government has proposed a bill that seeks to ban all private cryptocurrencies while allowing the creation of an official digital currency by the Reserve Bank of India. This may lead to changes in the taxation of cryptocurrencies in the future.

Applicability of TDS provisions [Section 194S]

In India, Section 194S of the Income Tax Act, 1961, provides for the applicability of Tax Deducted at Source (TDS) on payment of income by way of any "specified income". However, as of now, there is no specific provision for TDS on cryptocurrency transactions in India.

The term "specified income" under Section 194S includes income from lotteries, crossword puzzles, card games, and other games of any sort. It does not explicitly include income from cryptocurrency transactions.

However, individuals and businesses dealing with cryptocurrencies are required to report their transactions and gains from them in their income tax returns. Any gains from the sale or transfer of cryptocurrencies are subject to capital gains tax, and failure to report such gains can result in penalties and fines.

It is important to note that the Indian government has proposed a bill that seeks to ban all private cryptocurrencies while allowing the creation of an official digital currency by the Reserve Bank of India. If this bill becomes law, it is possible that new regulations and tax provisions related to cryptocurrency transactions may be introduced, including TDS. Therefore, individuals and businesses dealing with cryptocurrencies should stay updated on the latest developments and regulations.

Cryptocurrency and GST

In India, the Goods and Services Tax (GST) applies to the supply of goods and services. The taxability of cryptocurrencies under GST depends on whether they are classified as goods, services, or something else.

The Indian government has not yet provided a specific classification for cryptocurrencies under GST. However, the tax authorities have issued various circulars and rulings to provide guidance on the GST treatment of cryptocurrencies.

In general, if cryptocurrencies are sold or exchanged for fiat currency, such as Indian Rupees, they may be considered as goods, and GST may be applicable on such transactions. However, if cryptocurrencies are exchanged or used as a mode of payment for purchasing goods or services, GST may be applicable on the goods or services being purchased, but not on the cryptocurrencies themselves.

It is important to note that the GST treatment of cryptocurrencies is still evolving, and there may be changes in the future. Therefore, individuals and businesses dealing with cryptocurrencies should stay updated on the latest developments and regulations related to GST and cryptocurrencies in India.

By Esha Arora

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