The Flat 30% Tax on Gains
The cornerstone of India's crypto tax policy is a flat 30% tax on any income or profit made from the transfer of a VDA. This includes cryptocurrencies, NFTs, and other digital tokens. This rate applies regardless of your total income or how long you held
the asset; there is no distinction between short-term and long-term capital gains. An additional 4% cess is also levied, bringing the effective tax rate to 31.2% on all your profitable trades. A 'transfer' isn't just selling for Indian Rupees; it also includes swapping one crypto for another, like trading Bitcoin for Ethereum. Any gain from such a swap is a taxable event.
Understanding the 1% TDS
To track crypto transactions, the government implemented a 1% Tax Deducted at Source (TDS) on the transfer of VDAs, effective from July 1, 2022. This tax is deducted on the gross value of the transaction, not the profit. The TDS applies if your total transaction value in a financial year exceeds ₹50,000 (or ₹10,000 for certain individuals and entities). If you trade on a major Indian exchange, this TDS is typically deducted automatically. However, for peer-to-peer (P2P) or international exchange trades, the buyer is responsible for deducting the 1% TDS and depositing it with the government. This deducted amount can be claimed as a credit against your final tax liability when you file your income tax return.
The Harsh Reality of Losses
One of the most critical and unforgiving aspects of India's crypto tax law is the treatment of losses. You cannot offset losses from a crypto transaction against gains from another crypto transaction. Furthermore, you cannot set off crypto losses against any other income, such as salary or capital gains from stocks. The losses also cannot be carried forward to future financial years to offset future profits. This means every profitable trade is taxed at 30%, regardless of how many other trades you made that resulted in a loss.
Calculating Your Taxable Gains
When calculating your taxable profit, the law is very restrictive. The only deduction allowed from the sale price is the original cost of acquisition. This means you cannot deduct other expenses you might incur, such as transaction fees, gas fees for blockchain transactions, or internet costs. For example, if you buy a token for ₹10,000 and sell it for ₹15,000, your taxable gain is ₹5,000. Your tax liability on this trade would be ₹1,500 (30% of ₹5,000), plus cess. You must report these transactions in the 'Schedule VDA' in your Income Tax Return (ITR).
Gifting and Other Income
The tax rules extend beyond just trading. If you receive cryptocurrency as a gift, it is considered income and is taxable in the hands of the recipient if its value exceeds ₹50,000, subject to certain exceptions like gifts from close relatives. Income from activities like crypto mining, staking rewards, or airdrops is also taxable. This income is typically taxed at your applicable income tax slab rate upon receipt. When you later sell or transfer these received assets, the gain will be subject to the flat 30% VDA tax.
