Examining cryptocurrency structure and challenges in India.
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Examining cryptocurrency structure and challenges in India.

January 14, 2025No Comments

For investors, India’s cryptocurrency tax system presents both opportunities and difficulties. Here’s a closer look at the system’s operation and industry recommendations, including everything from transaction taxes to limitations on offsetting losses.

 

In the Union Budget for 2022, the Indian government unveiled a taxation framework for virtual digital assets (VDAs), including cryptocurrency. However, there is a lot of disagreement among experts about the strict tax responsibilities that came with this system.

Digital tokens, cryptocurrencies, and Non-Fungible Tokens (NFTs) are all included in the framework’s broad definition of VDAs.

 

The following are the main components of the taxes regime:

 

Gains are subject to a flat 30% tax:

 

Regardless of an individual’s income tax level, gains from the sale of cryptocurrency assets are subject to a flat 30% tax.

 

Compared to how many other asset classes, like stocks, are taxed, this rate is far higher.

 

1% TDS (tax withheld at source):

 

A 1% TDS is applied to all cryptocurrency transactions as of July 1, 2022.

 

For certain persons (such as high-net-worth individuals and organizations), the yearly threshold for TDS is ₹50,000, whereas for others, it is ₹10,000.

 

This holds true for transactions in which cryptocurrency is bought, sold, or traded.

 

Particular situations:

 

Airdrops and gifts: Crypto assets obtained through airdrops or as presents are subject to taxation at their fair market value, with the exception of gifts from family members or sums under ₹50,000 per year.

 

Crypto mining: Earnings from mining are taxed as supplementary income according to individual tax slab rates, which sets them apart from trading gains.


See also: CoinSwitch announces a ₹600-crore restitution scheme for victims of the WazirX hack

Trades between cryptocurrencies: Exchanges of one cryptocurrency for another are subject to a flat 30% tax rate. The 1% TDS must also be subtracted by both parties.

 

No loss offsetting: The framework forbids carrying forward or offsetting losses. An investor cannot lower their tax obligation by offsetting a loss against a gain, for example, if they experience a loss on one cryptocurrency transaction and a gain on another.

 

Industry issues and suggestions

 

The difficulties presented by this tax system, including its effects on market activity, innovation, and compliance, have been brought to light by the cryptocurrency sector.

 

The Tax Deducted at Source (TDS) on VDA transactions should be lowered from the current 1% to 0.01%, as we have been arguing. According to Balaji Srihari, Vice President of CoinSwitch, “this change would greatly reduce compliance issues, encourage market transparency, guarantee transaction tracking and tracing, and increase tax revenues.”

 

Srihari further suggests that the TDS applicability level be increased from ₹10,000/50,000 to ₹5,00,000.

 

“This would protect small investors and traders from undue tax burdens, ensuring fair treatment across the board,” he stated.

 

Another important industry demand is to align VDA taxation with other asset classes by permitting the carry-forward and offsetting of losses under capital gains provisions.

 

“This would help establish parity and create an environment for innovation,” Srihari stated.

FAQ

Cryptocurrency gains in India are taxed at a flat rate of 30%, regardless of the individual’s income tax bracket. This is significantly higher compared to the tax rates for other asset classes, such as stocks.

A 1% Tax Deducted at Source (TDS) applies to all cryptocurrency transactions, effective from July 1, 2022. The annual threshold for TDS is ₹50,000 for high-net-worth individuals and organizations, while for others, it is ₹10,000.

Yes, crypto assets received through airdrops or gifts are taxable based on their fair market value, except for gifts received from family members or those below ₹50,000 per year.

Earnings from crypto mining are taxed as supplementary income, subject to individual tax slab rates, differing from trading gains that are taxed at a flat 30%.

No, the current taxation framework does not allow the offsetting or carrying forward of cryptocurrency losses to reduce tax liability. This is a key point of contention within the industry.

Last updated on January 14, 2025

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