Frequently asked questions

If you are filing your income tax return in India, then your earnings should be declared in Indian rupees (INR). Also, there could be various points of taxation involved in crypto transactions such as when you lend them or you earn commissions. With respect to reporting requirements, if an individual is classified as resident and ordinarily resident, then they have to report foreign assets under Schedule FA (fixed assets). They have to report the details of any foreign assets held and any income from foreign sources in their ITR, irrespective of the level of income. However,  there are no clear guidelines from the government whether cryptos are to be considered as a foreign asset or not. Crypto being digital assets, the location of the server and the laws of the land applicable can be considered as location of the asset. If the crypto holdings get determined as foreign assets via government regulation, then they need to be reported in the ITR.

The income tax department has not yet offered any clarification regarding the tax implications on the gains earned from the crypto transactions.  In absence of this, we have to draw inference from the general principles of the Income Tax Act.  Taxability of crypto holdings would depend upon the nature of the transaction. As per the standard income tax rules, the gains on the crypto-transactions would broadly be classified as either (i) Business income or (ii) Capital gains. This classification will depend on the investors' intention and nature of these transactions. If there are frequent trades and high volumes, gains from the cryptocurrency transactions will be taxed as 'business income’. However, they will be taxed as 'capital gains' if the purpose of owning them is primarily to benefit from longer-term appreciation in value. The nature of classification has to be reviewed for every taxpayer, and taxpayers must take the help of an expert for accurate reporting.If the cryptos are held as a stock-in-trade, then such transactions will be taxed as business income. The amount of tax on such income will be calculated as per the regular income tax slab rates. In this case, GST implication also needs to be examined. If the crypto assets are held as investments, the tax will be paid according to their holding. As per the applicable income tax slabs, short-term capital gains tax will be leviable if crypto assets are held for less than three years (<=36 months). If the crypto-assets are sold after holding the investment for three years (> 36 months), they will be treated as long-term investments and taxed at 20% with indexation benefit. However, do note that as of now, there is no clear directive from the income tax department about how these gains from sale of cryptocurrencies should be taxed.

The Income Tax Return is an annexure less return. There is no need to attach documents or proofs of crypto holdings while filing the income tax return. The relevant proofs and certificates are essential to be obtained, however, those must be kept safely by you in your own records and not required to be sent to the department. Under any circumstance, if the income tax department issues a notice to seek clarification, then you will need to present these proofs. Otherwise all you have to do is file your income tax return online without any attachments.

Crypto holdings will be taxed according to the nature of the transactions and their classification. For instance, if classified as investments then capital gains provisions will become applicable.  In this case, crypto profits would be any excess of the sale consideration above the cost of purchase of the cryptocurrencies (Crypto profit = Sale consideration less indexed cost of purchase). Short-term capital gains tax will be leviable if crypto assets are held for less than three years (<=36 months). If the crypto-assets are sold after holding the investment for three years (> 36 months), they will be treated as long-term investments and taxed at 20% with indexation benefit.If received through crypto lottery, then tax provisions of winning from lottery would become applicable. Accordingly, tax on gains would depend on the nature and the classification of the crypto income. (note that right now no clear rules are available from the government on how such gains should be taxed.)

If the crypto assets are held as an investment, the appreciation in the value of cryptocurrency held as an investment will be classified as a long-term capital gain or a short-term capital gain depending on how long the asset has been held. The Income Tax Act does not specify how the crypto assets should be categorised into long-term or short-term capital assets. However, the main provision related to tax on capital gains, in general,  provides that the capital asset shall be categorised as ‘long-term capital asset’ if it is held for more than 36 months. Otherwise, it is a ‘short-term capital asset’. The taxpayer shall pay tax as per the period of holding of the crypto asset.

Taxation would depend on the nature of the transaction. In this case, earning cryptos from NFT games is likely to fall under the provision of ‘income of other sources’ and be taxable as per the individual's slab rate. However, there are no rules framed to derive the calculation of such earnings. In absence of which, inference and logic would be applied for the purpose of taxation. It is advisable for taxpayers to take expert advice to understand the tax implications on their crypto holdings.

Currently, there is no provision for taxation of cryptos in the Income Tax Act. However, tax must be paid on crypto coins or tokens earned from crypto airdrops, staking or other special events. It is advisable for taxpayers to take expert advice to understand the tax implications on their crypto earnings.

So far there are no rules laid down for taxation of cryptocurrency in the Income Tax Act. However, income tax must be paid on profits earned from crypto transactions. You can refer to our page https://cleartax.in/s/cryptocurrency-taxation-guide to know more about crypto taxation.

Tax on crypto will depend upon the basis of the classification of such income.
For instance, gains from the crypto held as investments may become taxable when you sell the crypto holdings i.e when you convert the crypto holdings into a FIAT currency like INR, dollar, etc. Tax may be payable on the amount appreciated over and above the purchase price. 
It is advisable for taxpayers to take expert advice to understand the tax implications on their crypto holdings.

As per the income tax rules followed in general, the profits earned from the crypto-transactions would become taxable as Business income or Capital gains. However, the classification will depend on the nature of these transactions.  If there are frequent trades and high volumes, gains from the cryptocurrency transactions will be taxed as ‘business income’. However, they will be taxed as ‘capital gains’ if the purpose of owning them is primarily to benefit from long-term appreciation in value with less number of trades. Crypto-assets can also be reported as ‘income from other sources’ while filing ITR and taxed accordingly. Income from other sources is also added to the total income and taxable as per the applicable tax slab of the taxpayer. Clarity on how crypto income will be taxed is awaited from the income tax department.

Cryptocurrency is still not regulated in India. With the absence of any regulatory framework, they can neither be called legal or illegal. However, there could be violation of Foreign Exchange Management Act (FEMA) for cross-border payments made in crypto currency. This is because any payment against goods or services should be in currency recognised by RBI and cryptos are not yet recognised as such.  Most of the international companies are hiring employees from India and paying them in cryptocurrency due to lower transaction costs compared to bank transfers. However, one should make sure that they take the legal route and pay taxes on salary received in the form of cryptos. Please also note that cryptocurrency is extremely risky and volatile and extreme caution must be taken if you plan to receive your salary in the form of cryptos. 

There is no clarification on taxation of profits earned from crypto by the income tax department. However, one should pay tax as per the standard income tax rules. Profits from cryptos will be taxable when you sell the crypto asset and convert it to Fiat in wallet. Encashing from the rupee wallets is not a taxable event. Hence, winnings from crypto lottery shall be taxed as per standard income tax rules applicable to lottery income. Winnings from the lottery are taxable at the highest individual tax slab (presently 30%) under the head ‘Income from other sources’.

It may be possible to do this theoretically, but your exchange may not allow it. FEMA laws may penalise cryptocurrency exchanges operating in India as they tend to violate the foreign exchange laws. The RBI and FEMA regulations with regards to cryptocurrency are yet to be formulated in India and they are expected to regulate both domestic and international transactions dealing with cryptocurrency.