Document

How To Calculate Tax On Income From Cryptocurrency In India?

By Sujaini Biswas

|

Updated on: Apr 24th, 2024

|

12 min read

Cryptocurrency is a type of digital currency that uses encryption methods to oversee the creation of currency units and ensure the safe transfer of funds. The key difference between traditional currency and cryptocurrency is that the latter is decentralised, meaning it operates without the backing of a central body like a government or financial institution. Rather, cryptocurrencies rely on blockchain technology to keep a transparent and secure record of all transactions.

As the use of cryptocurrencies has become more widespread, tax authorities worldwide have begun to take notice and are seeking to regulate these transactions.

What Is Crypto Tax?

Crypto tax

Crypto tax pertains to the tax obligations of individuals and businesses for their cryptocurrency-related transactions and profits. This refers to the amount of tax that must be paid to the government or tax authority for income earned through cryptocurrencies.

Cryptocurrencies, such as Bitcoin and Ethereum, are typically treated as property for tax purposes in most countries. Any profits or losses from buying, selling, or exchanging cryptocurrency may be subject to capital gains tax.

The specific tax requirements and rates for cryptocurrency transactions can vary depending on the jurisdiction. In some countries, crypto-to-crypto trades may also be taxable events. Additionally, the tax treatment of mining or staking cryptocurrency and receiving crypto as payment for goods or services may also be subject to taxation.

It is important to note that crypto tax laws can be complex and often require specialised knowledge. Therefore, it is advisable to seek the advice of a tax professional knowledgeable about cryptocurrency taxation to ensure compliance with relevant regulations and minimise tax liabilities.

Use our crypto tax calculator to calculate your taxes easily.

How To Calculate Tax On Income From Cryptocurrency?

Calculating tax on income from cryptocurrency can be a complex process that depends on several factors, including the tax laws, the specific nature of your cryptocurrency activities, etc. However, here is a general guide on how to calculate crypto taxes in India:

  • Determine the type of income: Cryptocurrency income can come in many forms, including mining rewards, trading profits, staking rewards, and receiving crypto as payment for goods or services. The tax implications of each type of income may vary depending on the country in which you reside.
  • Calculate the cost basis: To calculate your capital gains or losses, you must know the cost basis of your cryptocurrency holdings, which is typically the amount you paid for the cryptocurrency plus any fees or commissions associated with the purchase. If  In case you have received cryptocurrency as compensation for the goods or services you provided, the cost basis will be determined based on the cryptocurrency's fair market value. This implies that the value of the cryptocurrency at the moment of receiving it will be used to calculate its cost basis.
  • Calculate capital gains or losses: You must calculate the capital gain if you sell or exchange your cryptocurrency for a profit. This is typically the difference between the cryptocurrency's sale price and cost basis. If you sell or exchange your cryptocurrency at a loss, this cannot be used to offset other capital gains you may have.
  • Determine the applicable tax rate: The tax rate that applies to your cryptocurrency income will depend on the nation's tax laws.
  • File your tax: Filing your tax return is crucial as it involves declaring your cryptocurrency earnings, capital gains or losses, and complying with the tax regulations. Ensure that you provide all the necessary details and seek the guidance of a tax expert if you have any uncertainties about your tax obligations.

Examples Of Crypto Tax

Examples Of Crypto Tax

In India, the tax on income from cryptocurrency is levied as per the income tax rules applicable to capital gains. Here are two examples of how to calculate tax on income from cryptocurrency in Indian rupees:

Example 1: 

Suppose Mr. A buys 1 Bitcoin on January 1, 2024, for INR 40 lakh and sells it on March 1, 2024, for INR 50 lakh. 

Calculation:

Sale Value = INR 50,00,000

Cost of Acquisition = INR 40,00,000

Capital Gains = INR 10,00,000 (Sale Value - Cost of Acquisition)

Tax on Capital Gains @30% = INR 3,00,000 (30% of INR 10,00,000)

Net Income after Tax = INR 7,00,000 (INR 10,00,000 - INR 3,00,000)

Example 2: 

Suppose Ms. B buys 10 Ether on January 1, 2024, for INR 10 lakh and sells it on February 1, 2024, for INR 50 lakh. 

Calculation:

Sale Value = INR 50,00,000

Cost of Acquisition = INR 10,00,000

Capital Gains = INR 40,00,000 (Sale Value - Cost of Acquisition)

Tax on Capital Gains @20% = INR 8,00,000 (20% of INR 40,00,000)

Net Income after Tax = INR 42,00,000 (INR 50,00,000 - INR 8,00,000)

Note: The tax rates mentioned above are for illustration purposes only and are subject to change as per the prevailing tax laws in India. 

It is important to note that tax laws related to cryptocurrency can vary significantly by jurisdiction, and these calculators may not be suitable for all tax situations. To accurately determine your tax responsibilities regarding with regard to cryptocurrency in your country, it is recommended that you seek the services of a tax expert who possesses adequate knowledge of cryptocurrency taxation. This will help you gain a better understanding of your particular tax obligations.

When Do Cryptocurrency And NFT Earnings Face 30% Tax?

A new tax on crypto in India has been implemented with the aim of regulating cryptocurrency transactions and ensuring they are subject to taxation. According to this law, any income earned from the transfer of virtual digital assets will be subject to a 30% tax rate. Additionally, a 1% tax will be deducted at the source (TDS) for such transfers as per the provision of Section 194S. This law marks a significant step towards bringing cryptocurrency transactions under the tax net.

Use our crypto tax calculator to calculate your taxes easily

Will You Have To Pay Tax For Holding Crypto?

The tax treatment of cryptocurrency in India is still evolving, and the country's tax authorities still need to issue comprehensive guidelines regarding the taxation of cryptocurrency holdings. If you hold cryptocurrency as an investment and sell it at a profit, you may be required to pay capital gains tax in India. This means that any income earned from the sale of cryptocurrency will be subject to taxation by the country's capital gains tax laws.

The tax rate will depend on the duration of the investment (short-term or long-term) and your income level. Additionally, you may need to report cryptocurrency as income and pay taxes if you receive cryptocurrency as payment for goods or services.

In India, as per Section 115BBH , Tax at 30% is levied on trading in Virtual digital assets irrespective of the holding period. 

Also, there is no tax liability on unrealised profits or the VDA, which are still in holdings.

Conclusion 

As cryptocurrencies become more widely accepted, investors and traders must be aware of the tax consequences associated with their transactions. Non-compliance with tax regulations can result in severe penalties and legal repercussions, emphasising the need to stay informed about relevant tax laws and fulfil tax obligations accordingly.

Individuals with large amounts of transactions across multiple exchanges and wallets are recommended to maintain detailed books of account or accounting for the transaction undertaken. This will help you in the aggregation of all the transactions and provide capital gain statements on all such trades. This will also help in determining your holdings , Unrealised profits and Cost basis for your VDAs. 

The taxation of cryptocurrencies can be complex and vary significantly by jurisdiction, which highlights the need for expert guidance from tax professionals knowledgeable about cryptocurrency taxation.

Fortunately, many tools and resources are available to help investors and traders navigate the complexities of crypto tax, including online tax calculators, specialised tax software, and consultation services from experienced tax professionals.

Ultimately, by staying informed and taking a proactive approach to tax compliance, individuals can ensure they meet their tax obligations while maximising the potential benefits of their cryptocurrency investments.

Related Articles 

Cryptocurrency Taxation Guide 2024

Tips To Save Crypto Tax

How To Invest In Cryptocurrency- Complete Guide

Frequently Asked Questions

What is crypto tax?

Crypto tax pertains to the tax levied on cryptocurrency dealings, encompassing cryptocurrencies' purchase, sale, and trade. It involves the payment of taxes on income generated through these transactions and is subject to the tax laws and regulations applicable to the specific jurisdiction.

How is capital gains tax calculated for cryptocurrency?

Capital gains tax for cryptocurrency is typically calculated based on the difference between the cryptocurrency's purchase price and selling price.

Do I have to pay tax if I exchange one cryptocurrency for another?

Yes, exchanging one cryptocurrency for another is considered a taxable event. As per Section 115BBH tax @ 30% is leived on gains made form cryptocurrency.

How can I calculate my crypto tax liability?

Many online crypto tax calculators and specialised tax software can help you calculate your potential tax liability based on your cryptocurrency transactions.

Individual having large transaction across multiple exchange or wallets are recommended to using online bookkeeping software to aggregate the crypto transaction details.

What are the potential consequences of not paying crypto tax?

Neglecting to adhere to tax laws and regulations can lead to serious legal repercussions, such as monetary fines and the possibility of facing criminal charges. Individuals must ensure they comply with the tax laws and regulations applicable to their cryptocurrency transactions to avoid any potential legal consequences.

About the Author

A manager by day and a sloth by night. I enjoy writing on topics like personal finance and investments. With 10 years of experience in fintech, creating content that resonates with readers is my forte. Read more

Public Discussion

Get involved!

Share your thoughts!

summary-logo

Quick Summary

Cryptocurrency employs encryption for secure transactions and operates without centralized authority. Tax authorities worldwide are regulating crypto transactions. Individual tax obligations vary based on the country's laws. Calculating tax for crypto earnings depends on factors like type of income, cost basis, gains or losses, applicable tax rate, and filing requirements. India taxes crypto capital gains. Holding crypto might incur tax upon sale. Compliance with evolving tax laws is crucial to avoid penalties.

Was this summary helpful?
liked-feedbackliked-feedback

Clear offers taxation & financial solutions to individuals, businesses, organizations & chartered accountants in India. Clear serves 1.5+ Million happy customers, 20000+ CAs & tax experts & 10000+ businesses across India.

Efiling Income Tax Returns(ITR) is made easy with Clear platform. Just upload your form 16, claim your deductions and get your acknowledgment number online. You can efile income tax return on your income from salary, house property, capital gains, business & profession and income from other sources. Further you can also file TDS returns, generate Form-16, use our Tax Calculator software, claim HRA, check refund status and generate rent receipts for Income Tax Filing.

CAs, experts and businesses can get GST ready with Clear GST software & certification course. Our GST Software helps CAs, tax experts & business to manage returns & invoices in an easy manner. Our Goods & Services Tax course includes tutorial videos, guides and expert assistance to help you in mastering Goods and Services Tax. Clear can also help you in getting your business registered for Goods & Services Tax Law.

Save taxes with Clear by investing in tax saving mutual funds (ELSS) online. Our experts suggest the best funds and you can get high returns by investing directly or through SIP. Download Black by ClearTax App to file returns from your mobile phone.

Cleartax is a product by Defmacro Software Pvt. Ltd.

Company PolicyTerms of use

ISO

ISO 27001

Data Center

SSL

SSL Certified Site

128-bit encryption