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Key Takeaways
- Crypto Tax Implications in India: Profits earned from selling, swapping, or spending crypto assets in India are subject to a flat tax rate of 30%. This tax is further supplemented by applicable surcharges and an additional 4% cess, making it important for investors and traders to factor in these obligations while transacting in cryptos.
- Tax Regulations Under Section 115BBH:
- The taxation of crypto assets in India is governed by section 115BBH of the Indian tax code. Under this section, there are no provisions for reduced tax rates, even for long-term capital gains arising from crypto transactions.
- Additionally, deductions are strictly limited to the cost of acquisition of the asset. No other expenses, such as transaction fees or related costs, can be claimed as deductions while calculating taxable income.
- Tax Deducted at Source (TDS):
- To ensure tax compliance, a 1% Tax Deducted at Source (TDS) is levied on all transfers of Virtual Digital Assets (VDAs). This applies to both individual and institutional transactions involving crypto assets. This measure, introduced on July 1, 2022, aims to ensure transparency in crypto transactions. The Union Budget 2025 emphasizes stricter compliance and reporting obligations under this rule, especially as crypto adoption grows.
- Income Tax Return (ITR) Reporting:
- Starting from the fiscal year 2025-2026, mandatory reporting by crypto exchanges and other designated entities will be enforced to ensure compliance and greater tax transparency.
- G20 Stance on Crypto Regulation: Discussions among G20 nations have emphasized that banning cryptos outright would be counterproductive and impractical. Instead, they advocate for the creation of a step-by-step regulatory framework that aligns with global standards, promoting oversight while fostering innovation in the crypto ecosystem.
- Crypto Taxation in the Interim Budget 2025: The Interim Budget 2025 did not introduce any major changes to the existing crypto taxation rules in India. The prevailing regulations, including the 30% tax on profits from crypto transactions and the 1% TDS on transfers, continue to apply. However, the Budget introduced additional provisions for enhanced transparency, including mandatory reporting by crypto exchanges and other entities starting in the fiscal year 2025-2026. These updates aim to ensure compliance and facilitate smoother taxation processes for the growing crypto market.
Budget 2025 Crypto Tax Update
The Union Budget 2025 introduces a new framework for mandatory reporting of crypto transactions. Starting from the financial year 2025-2026, individuals and entities dealing in Virtual Digital Assets (VDAs) must report their crypto gains under a newly defined section in the Income Tax Return (ITR). This will be done in a dedicated Schedule VDA, which aims to streamline crypto-related tax reporting and improve transparency. Crypto exchanges and other entities involved in crypto transactions will also be required to submit detailed reports to tax authorities to ensure greater compliance and avoid penalties.
Budget 2024 Crypto Tax Update
The Income Tax Return (ITR) for the 2023-2024 financial year now includes a section, Schedule Virtual Digital Assets (VDA), specifically for declaring gains from cryptos and other digital assets. The filing deadline for this ITR was July 31, 2024, but you have an option to file a belated return by December 31, 2024.
Budget 2023 Crypto Tax Update
The Union Budget rules of 2022 have been one of India’s first laws to recognize crypto assets, hence putting down taxation on crypto in India. However, following that, crypto assets have been categorized as “ virtual digital assets ” and not “currencies” backed by the central bank.
According to the 115BBH section of the Finance Bill, a taxable event is defined as:
- Conversion of any digital assets to INR or any other fiat currency.
- Conversion of one virtual digital asset type to another may include crypto-to-crypto trading or trading in stablecoins.
- Paying for goods and services using a virtual digital asset.
As per the announcements on the taxation on crypto in India, the profits that will or have been incurred from the above transactions are subjected to a 30% tax, which is equivalent to India’s highest income tax bracket. Furthermore, if the transaction exceeds INR 10,000, the crypto tax will then have an additional 1% tax levied on them.
What are Virtual Digital Assets?
Virtual Digital Assets refer to any digital assets that are not physical or tangible. In layman’s terms, it basically means cryptos, DeFi ( decentralized finance ), and non-fungible tokens (NFTs). Prima facie excludes digital gold, central bank digital currency (CBDC), or any other traditional digital assets and is specifically aimed at taxing cryptos.
Crypto Taxation in India Explained
Though there are still many discussions that the Indian Government is yet to have with the Indian masses regarding the regulations on Crypto Taxation in India in India, or for the ‘ Virtual Digital Assets ’; according to the Budget 2025 session, these are the pointers any crypto investor should keep in mind:
- Income from the transfer of virtual digital assets such as crypto and NFTs will be taxed at 30% at the end of each financial year.
- No deduction, except the acquisition cost, will be allowed while reporting income from the transfer of digital assets.
- Loss from digital assets cannot be set off against any other income.
- The gifting of digital assets will attract tax in the hands of the receiver. Losses incurred from one virtual digital currency cannot be set off against income from another digital currency. 1% TDS point should also be mentioned in this list of pointers as it was announced in Budget 2022.
- Mandatory Reporting from 2025-2026: Starting in the fiscal year 2025-2026, mandatory reporting requirements will apply to both individuals and crypto exchanges, making it necessary to report all crypto transactions under a dedicated section in the Income Tax Return (ITR).
As per Section 206AB of the Income-Tax Act, 1961:
- If any user has not filed their Income Tax Return in the last two years and the amount of TDS is INR 50,000 or more in each of these two previous years, then the tax (TDS) to be deducted for Crypto-related transactions will be at 5%.
- TDS provisions will apply if an order is placed before July 1, 2022, but the trade is executed on or after July 1, 2022.
