In India, cryptocurrencies have become a rage. The country is said to have the second-highest adoption rate.
The spurt has caught the government’s attention, and according to media reports, the government is mulling taxing blockchain ecosystems, which include cryptocurrencies and non-fungible tokens (NFTs).
“Crypto has been gaining momentum in India ever since the SC (Supreme Court) reversed the banking ban on crypto in 2020. Slowly more and more institutions are coming out in its support, and that has also piqued retail interest in crypto,” says Nischal Shetty, founder and CEO, WazirX, a cryptocurrency exchange.
“We're living in exciting times for crypto in India. We're experiencing increased daily trade volumes, a burst in the number of crypto and blockchain startups in the country, and interest in crypto at new highs,” he adds.
Investing in cryptocurrencies is easy, which is another reason why it had picked up. First you need to sign up for a platform and do the KYC verification. Once the verification is done, you transfer money from your bank account into your wallet and buy cryptocurrencies.
Let’s take a look at how cryptocurrency investment gains are taxed.
“There aren’t any specific rules around the taxation of cryptocurrency in India. But every income is taxed in India so one needs to pay tax on crypto gains as well. At present, one can fill the details under the ‘other income’ tab in your (tax) return,” says Bandhul Bansal, founder, Finstreet, a financial coaching platform.
Agrees Manav Bajaj, founder, Panther Quant, an algorithmic crypto trading platform built on the blockchain: “There are currently no clear directions on how cryptocurrencies will be taxed in India. However, pre-existing rules around incomes can be applied to income from trading and/or investing in crypto assets.”
For instance, crypto gains from trading can be considered business income. So, if you are trading crypto tokens just like you do stocks, then the profits will be considered as business income.
Capital Gains and Losses
For those with long-term investments, profit/loss is considered capital gain/loss. “For all crypto investments, (gains/losses) would be treated as capital gains and the profit/loss would have to be reported as such,” adds Bajaj.
If you hold the crypto investment for more than 36 months (three years), it may be considered a long-term investment and be subject to 20 per cent tax plus applicable fees. If they are held for less than 36 months, then the investment may be considered short term and be subject to tax at the applicable personal taxation rates.
For long-term capital gains, indexation benefit cannot be availed of to increase the cost on account of inflation.
If you are investing in cryptocurrencies, it is important to report your income and pay the required taxes. Clarity is awaited from the government on its stand on taxation of crypto investments.