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Top 10 Ways To Save Crypto Taxes

By Sujaini Biswas

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Updated on: Apr 25th, 2024

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2 min read

Cryptocurrency is an exciting investment option, but it can also come with a hefty tax bill. The IRS treats cryptocurrency as property, and therefore taxes it as such. This means that any gains made from buying and selling cryptocurrency are subject to capital gains taxes. However, there are ways to reduce your crypto taxes and keep more of your profits. 

cryptocurrency investment option

Let us understand the top 10 ways to save crypto taxes; 

1.Plan ahead: 

It is important to plan ahead when it comes to cryptocurrency taxes. Such transactions or trades might have tax implications. For example, Selling crypto at a loss might not allow you to set off the loss against other gains in crypto. By understanding the tax implications of your investments and taking steps to minimise your tax liability, you can potentially save a significant amount of money on taxes over the long term.

2. Consider a like-kind exchange: If you have multiple cryptocurrencies and want to trade them for each other, you may be able to do so without triggering a taxable event by using a like-kind exchange. This allows you to exchange one cryptocurrency for another without realising any gains or losses.

3. Consider using a self-directed IRA: A self-directed IRA is a retirement account that allows you to invest in a wide range of assets, including cryptocurrency. By using a self-directed IRA to invest in cryptocurrency, you can defer taxes on your gains until you withdraw the funds from your account. This can be a great way to save on taxes and build wealth for your retirement.

You can now file your ITR easily on Cleartax if you have gained from crypto. Click here.

4. Crypto Received As Gift: Crypto received as a gift from relatives if it does not surpass the Rs 50,000 limit, then it is tax-free in India. If it is received on special occasions like marriage or inheritance also, then the crypto received is tax-free. 

5. Use cryptocurrency tax software: Calculating your cryptocurrency taxes can be complicated if you have transactions in multiple exchanges and wallets, but there are software programs available that can make it easier. Cryptocurrency tax software can automate the process of calculating your gains and losses, which can save you time and money. These programs can also help you identify deductions and other strategies for saving on your taxes.

6. Keep good records: To accurately calculate your crypto taxes and take advantage of deductions and other strategies, it's important to keep good records of your cryptocurrency transactions. This includes keeping track of the date you acquired the cryptocurrency, the price you paid for it, and the date and price you sold it for. Keeping good records can help you maximize your deductions and avoid mistakes that could lead to penalties or interest charges. Implementation of robust crypto book keeping software is crucial for those who are trading in multiple exchange and wallet

7. Investing in Bitcoin ETF instead of Bitcoin Directly:If you want to get exposure towards bitcoin as an asset without worrying about the hassle of investing via exchange ,Regulatory risk and Security you can invest through Bitcoin ETF which is listed in the US Stock exchange. This provides you exposure towards Bitcoin as an asset without the demerits from regulatory point.

  • Gains from Bitcoin ETF are taxed at your respective slab rates instead of flat 30%.
  • Loss from Bitcoin ETF are not eligible to be set off against other head of capital gain.

However, investing through this route might be limited towards only one asset class i.e. Bitcoin. You will not be able to invest in other forms of crypto currency.

8. Consider using a tax professional: If you're unsure about how to handle your cryptocurrency taxes or want to make sure you're taking advantage of all available strategies, consider using a tax professional. A tax professional with experience in cryptocurrency can help you navigate the complexities of the tax code and provide guidance on strategies for reducing your tax bill. While this may cost more upfront, it can save you money in the long run by helping you avoid costly mistakes or missed opportunities.

9. Keep up to date with tax laws: The tax laws related to cryptocurrency are constantly evolving, so it's important to stay up to date with any changes that may impact your taxes.. Budget 2022 has implemented Section 115BBH, and in ITR form Schedule VDA was introduced. Failing to report cryptocurrency transactions can lead to penalties, interest, or even criminal charges, so it's important to stay informed and compliant with tax laws.

10. Loan against your Crypto Assets: 

Multiple Crypto platforms, exchanges and protocols provide options to pledge your Crypto assets and borrow against such assets for Interest. Thus for short-term liquidity requirements, you can think of borrowing in stable coins. Thereby your unrealised gain on such crypto assets is not realised, and no tax impact on such transaction. 

disclaimer for crypto taxation

Disclaimer - Any discussion of tax savings involves risk. While certain tax strategies may be legal and appropriate for some individuals or businesses, they may not be suitable for everyone. Tax laws and regulations are subject to change, and the effectiveness of any particular tax strategy will depend on your individual circumstances. It is important to consult with a qualified tax professional before making any decisions regarding tax planning or tax savings. Any reliance on the information provided is solely at your own risk.

Conclusion:

Cryptocurrency can be a lucrative investment opportunity, but it comes with tax implications that can impact your profits. By using the strategies outlined in this article, you can reduce your tax bill and keep more of your gains. 

The scope of saving taxes on crypto transactions is very limited in India. This is because a flat 30% tax is levied on gains without giving the benefit of inherent expenditure incurred. Also no deduction or exemption is available when you incur any capital gain on crypto. Thus it limits any opportunity to plan and save crypto taxes in India.

Related Articles 

  1. Tax Saving Tips For Crypto 
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Frequently Asked Questions

How can I avoid taxes on my crypto wallet?

Tax on crypto is applicable only on a realisation basis. i.e unless you actually sell such crypto , tax implications will not be applicable.

What is the best way to report taxes on crypto?

Any trading involving exchange of one crypto to another crypto or one crypto to fiat must be declared in Schedule VDA of Income tax return form. Schedule VDA is available in ITR 2, 3. 

How do I save 30 percent tax on crypto?

30% tax on crypto is applicable only on sale of one crypto to another. Thus no tax will be levied on unrealised profits or when crypto is not traded or sold. Also there will be no tax implication when crypto is transferred from one wallet or exchange to another wallet or exchange.

What is the TDS rule for crypto?

TDS under section 194S was enacted whereby buyer of a crypto will have to deduct 1% TDS at the time of purchase. However when such transaction are undertaken in a crypto exchange then such exchange is liable to deduct the TDS.

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

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.

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