- Everyone who earns over ₹ 2.5 lakh has to pay income tax in India.
- The Indian Finance Ministry has clarified that earnings from
crypto investments are not exempted. - The extent of liability could vary based on taxpayer profile.
Several investors have entered the ‘rich list’ and made billions, by investing in
Others looking to dip their toe in the crypto market, may be wondering how profits for investing in cryptocurrencies are taxed — if at all. Here’s a quick look.
Laws and regulators move slower than technology, illustrated at every step of the Internet’s advances. This is true in India as well with guidelines slowly changing to let retail investors participate in cryptocurrency, and allowing banks to send money to crypto exchanges. India’s central bank, the Reserve Bank of India (RBI), has indicated that trading in digital currency is allowed but has warned investors of the potential risks.
India’s tax laws have yet to catch up, so consultants rely on interpreting existing laws in a grey area. However, the Indian MoS for Finance Ministry, Anurag Thakur, has made it clear that crypto earnings are taxed since it is not specifically exempted.
In brief, everyone who receives profits in hand. Earning from cryptocurrency in any form is not listed in the income categories exempt from tax. To clarify, income taxes are only applicable to gains received in hand.
So, if one invested ₹10,000 into Bitcoin and the coin’s price tripled since then, that gain is theoretical — with no tax due. Similarly, if a Bitcoin miner mined a certain number of Bitcoin but has not sold it for monetary gain in rupees, the Bitcoin held has only theoretical value, with no tax due on it.
But if you ‘cash out’ by selling some of that coin at a profit and receive rupees in the bank, the profit you gained is now taxable.
If you have cashed out partly or wholly and a profit has reached you, you need to consider your tax liability.
If you had invested a certain amount that continues to grow – and you haven’t pulled that money out – you do not have to think about taxes yet. Because of long-term capital gains tax (LTCG) — explained further below — the longer you stay invested, the less tax you pay.
There are no specific tax laws for cryptocurrency in India yet, but there are existing paths that guide us.
Personal Income (a)
For relatively small profits, gains from cryptocurrencies can be listed under “other income” in the tax form, and pay as per the tax bracket applicable.
Personal Income (b)
For relatively larger profits from cryptocurrency, it would be advantageous to note it as an investment holding, and pay capital gains tax accordingly. Investments held for less than three years would be subject to short-term capital gains tax (STCG). In this case, STCG tax would be paid at the same income tax bracket a person already is in for that year.
If an investment is held for more than three years before cashing in, the profits would be subject to long-term capital gains tax (LTCG). In this case, the applicable LTCG tax would be 20%. If a person is in a higher tax bracket than that for the year, LTCG would be preferable.
Business Income
You would pay taxes as usual, including for realised cryptocurrency gains. You can deduct expenses incurred by the business, thus lowering tax liability. If your main business was to mine cryptocurrency, you could deduct expenses incurred towards mining.
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