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Tips to Save Crypto Taxes

Updated on :  

08 min read.

Investing in cryptocurrency is currently the hottest trend in the global investment market. Being decentralised, these digital currencies are not controlled by any governments or other centralised financial institutions. However, the government still taxable the profit generated from its sale, trading, or transfer. 

In the Union Budget of 2022, the Government of India has introduced taxation rates regarding profits arising from digital currencies. There would be a 30% tax rate and a 1% TDS deduction for profits from digital assets.

However, do you know that there are various strategies with which you can easily save on the tax amount that you need to pay for profits from cryptos?

 To know some of them in detail, read on. 

How can you save on crypto tax?

Here are some of the best tips that will help you reduce your crypto tax:

Hold onto your crypto for the long term

You should always plan for a long-term capital gain in crypto compared to a short-term. This will help you save more on taxes. 

It is called a long-term capital gain when you sell your assets after holding them for at least 12 months. On the other hand, a short-term capital gain is when you sell your investments in less than 12 months. 

As per experts, the long-term capital gain taxation would be much less than short-term capital gain taxation on crypto assets. Some experts claim that long-term crypto gain might help you lower your crypto taxation by 10%.

If you want to sell your cryptocurrency, do it after 12 months. The low tax rate will help you save more on taxes.    

Get indirect exposure to crypto

One of the most effective steps to reduce your crypto taxation is to receive indirect exposure to cryptocurrency. Interestingly, certain recently launched portfolios by various global investment platforms allow Indian crypto investors to obtain exposure to a particular digital currency without buying it or directly investing in it. 

As a crypto investor, you can benefit from low taxation through such indirect exposure. 

Sell during a low-income year

Your taxable income determines the taxation rate of your profits from crypto sales. As a lower income will ensure a lesser income tax rate for that financial year, selling your crypto assets in a low-income year helps you save on crypto taxes. 

Another advantage of waiting for a low-income year is that after a period of 12 months, the tax rate for the crypto assets will be calculated as per the long-term capital gain rates. So you get a double benefit when it comes to tax savings. 

Keep the gains in stablecoins

When you invest your profits from cryptocurrency sales in stablecoins, you not only save on taxes but you secure your investment in the long run. 

Unlike cryptocurrencies like Bitcoins, stablecoins have their value pegged to another currency, commodity, or financial instrument, making them much less volatile. As a result, you are less likely to incur a long-run capital loss by investing in them. 

For example, USD Coin has its value pegged at 1 USD Coin = 1 US Dollar. So, keeping in view the growth of the US Dollar, investing your cryptocurrency in such a stablecoin can be a wise choice. 

These are some of the methods to save crypto taxes. However, before acting on any of these tips or strategies, taking help from a tax professional is highly advisable. 

Do remember that the crypto taxation rate introduced in this year’s budget will not be applicable if you have made any gains from cryptos on or before 31 March 2022. 

A proper strategy will ensure that your tax saving plan gives you the best results while adhering to the income tax guidelines.