Tax rules for cryptocurrency investments have evolved significantly, treating cryptos as Virtual Digital Assets under the Income Tax Act, via the Finance Act, 2022. If you’re trading or holding digital assets, understanding tax rules for cryptocurrency investments in India is crucial. What are the latest tax rules for cryptocurrency investments in India, and how do they impact you? Let’s break it down.
Taxation of Crypto Gains:
From 1 April 2022, income from the transfer of virtual digital assets (VDAs) — which includes cryptocurrencies — is taxed at a flat 30% rate under section 115BBH of the Income Tax Department rules. This flat rate applies regardless of holding period, meaning whether you held the asset for days or years, the tax remains the same.
In addition, losses from VDAs cannot be set off against other income nor can they be carried forward. For example, if you bought crypto for ₹5 lakh and sold for ₹8 lakh, the profit of ₹3 lakh will attract 30% tax (plus cess/surcharge).
TDS & Other Compliance Considerations:
On crypto transactions in India, a 1% TDS (Tax Deducted at Source) applies when transfers of VDAs exceed certain thresholds. The TDS is on the total sale value, not just the profit. Furthermore, platform fees and services such as trading, conversions and withdrawals may attract GST — for example, 18% GST on crypto-platform services.
To illustrate, even if you incurred a loss, TDS may still have been deducted at 1% when you sold the asset. This adds a compliance layer for Indian investors.
Key rules on deductions, set-off, and losses:
When it comes to deductions and losses, the tax rules for cryptocurrency investments in India are strict. Only the cost of acquiring the asset is allowed as a deduction. No other expenses — such as transaction fees, gas charges, or exchange commissions — can be deducted.
Moreover, losses from crypto trades cannot be set off against other income nor carried forward to future years. In other words: even if you lose money on one crypto transaction and gain on another, you cannot offset the loss against the gain for tax purposes.
Other considerations:
- Track acquisition cost in INR: Because the tax applies on profits calculated in INR, accurate cost basis is crucial.
- TDS matters: A 1 % TDS on crypto transfers means you will see deductions and you should reconcile these with your Form 26AS and tax return.
- No loss carry-forward: Since crypto losses cannot reduce other income or future deficits, avoid assuming offsets.
- Consider holding period and activity: Although the tax rate remains flat regardless of how long you hold crypto, your pattern of trading might shift your classification to business income (which carries slab rates).
- Gifting of crypto: If you receive crypto as a gift from non-relatives and later sell, tax rules apply to you. The cost of acquisition becomes the market value on date of gift.
- Transfers between your own wallets are generally not taxable if no sale or transfer for consideration occurs. However you must maintain records.
- Stay updated on regulatory changes: India’s approach to crypto taxation and regulation continues evolving
Conclusion:
For Indian investors, tax rules for cryptocurrency investments in India mean high tax on gains, very limited deductions, and strict reporting obligations. Therefore, plan your crypto trades and documentation carefully. Given the evolving regulatory environment and tougher compliance, it is wise to maintain detailed records of all your crypto transactions. Ready to navigate crypto taxes? Explore more financial insights now!
– Ketaki Dandekar (Team Arthology)
Read more about Tax Rules for Cryptocurrency Investments here – https://cleartax.in/cryptocurrency-taxation