Taxation of Cryptocurrency in India: An Ultimate Guide

Cryptocurrency, India, Taxation, Income Tax, Tax Guide, Blockchain, Bitcoin, Ethereum

Cryptocurrency- the word itself isn't less than a precious stone as the staggering rise in value continues to drag millions of eyeballs to this digital asset. After all, it is the best source of piling enormous wealth for the future. But this isn't the end. As when stepping out for cryptocurrency investment, some serious taxation questions start terrifying us.  

At such points, you must be keen on an idea that could save a big buck from being drowned out in a taxation drain. But, it’s tricky to find the way out until you are familiar with the entire structure of taxation in cryptocurrency.  

It has been an undying misconception that cryptocurrency is free of taxes, but it can never be wise to move in haste until a book's remaining pages are untouched.  Therefore, to get you sorted on cryptocurrency taxation, in this ultimate guide, we share some vital information with you.  

How does cryptocurrency taxation work In India? 

The term “cryptocurrency” isn’t that new to the financial market of India. Everyone knows the potential of this digital asset, but surprisingly the government of India keeps cryptocurrency tax-exempts. Unlike other assets, you don't see any direct taxes on cryptocurrency.  

But it's worth noting that the government of India levies taxes on every item that represents a "received income." Hence cryptocurrency isn't far from the vise of taxation. Here are the following scenarios where cryptocurrency is taxed in India.  

Cryptocurrency exchanged for real currency during stock-in-trade 

Beyond a surprise, any profit arising out of a sale comes under the Indian government taxation system. Similarly, if a trader trades crypto-currencies and earns profits out of them, he/she is liable to pay taxes. 

The cryptocurrency held for an investment exchanged for real currency 

When a trader holds cryptocurrency, this means that he/she holds investment assets and waits for the best time to arrive when its prices are remarkably high. Meanwhile, if this investment is transferred to another person or trader, gains on investment capital would be taxed as here the seller will exchange his investment for real money.   

Cryptocurrency receives against goods or services sales 

If a person receives cryptocurrency against goods or services from a seller, he/she is liable to pay taxes as this constitutes income in the hands of the buyer that the Indian government would tax.  

Cryptocurrency taxes: things to consider 

Before your incomplete knowledge about crypto, taxation takes you into the worst nightmare; catch a glimpse of the following points that you must consider when you are involved in a cryptocurrency network.  

1. Cryptocurrency usages are exposed to tax liability 

If you don't trade cryptocurrency, then it doesn't conclude that you aren't exposed to tax liability in India. For instance- if someone takes your product or services and gives you cryptocurrency in return for it, the received currency would be entitled as an "income," which is taxable.   

2. Gains on cryptocurrency trading is similar to gain on any investment 

Whether you make short-term gains or long-term gains on cryptocurrency trading, what you gained is the only thing that matters in crypt-currency trading. Hence the amount you receive on such gains is taxable.   

3. Cryptocurrency is treated the same as other assets  

Even though you want to send cryptocurrency as a gift to a relative, cousin, or friend, the gift would include taxation as the future will spark interest, leading to a rise in cryptocurrency prices. Hence, the government levies taxes on such assets.  

4. Owned cryptocurrency and used cryptocurrency 

You own cryptocurrency, and now you are hooked on the idea of selling it which means you are using it to gather income or pay a certain expense through it. Hence both scenarios will be different. There's no need to panic when you own a currency, but when you wish to sell out currency, taxation will be levied.  

Cryptocurrency mining 

Cryptocurrency mining plays an integral role in digital currencies. The miner receives a significant portion of bitcoin upon the accomplishment of the mining task. Hence you can call it self-generated digital assets that are tax exempt. But when a user sells out these coins, it gives rise to "capital gains," which comes under taxation in India.  

Case Specific

Cryptocurrency might have been used for purchase of goods, payment of salary, donation, gift or many other general purposes. There is likelihood that one might have received crypto from freelancing work, mining, airdrop, peer-to-peer exchange. For specific calculation of taxation for such transaction, professional cryptocurrency taxation tools are recommended.

The Bottom Line 

In the end, it is self-evident that gains that you have made in cryptocurrency are an input factor for determining the taxes. Depending upon time you have held will determine whether Short Term Capital Gain Tax (STCG) or Long Term Capital Gain Tax (LTCG) shall apply to your earnings.  Whether you wish to sell out, trade, or exchange your cryptocurrency against a good or service, the government of India will levy a certain ratio of taxes which will be defined by the government in upcoming regulations. Until then, taxes can be filed in the “Others” Section with the Income Tax Department”  For more information and any assistance get in touch with Catax Crypto Taxation Expert.