A cryptocurrency is a form of digital currency that comes with end-to-end encryption. As a result, no one can forge its value, sell it illegally, or spend it twice. The majority of cryptos available worldwide are decentralized using blockchain technology.

Everyone believes in the dominance of cryptocurrencies, from millennials to established businessmen and even experienced traders. With the growing popularity of cryptocurrencies as secure assets, the Indian government has recently begun taxing them.

What exactly is cryptotax?

According to the Income Tax Provisions, a crypto currency is defined as:

A form of digital asset (VDA), According to the rules of the Foreign Exchange Management Act of 1999, it is neither a form of Indian currency nor a foreign currency. Only digital platforms can be used to exchange, trade, or store assets.

While cryptocurrency is not legal tender within India, it is available for trading and investment. So, the tax levied on transaction of Crypto is crypto tax.

Why is cryptocurrency taxed in India?

Cryptos can only be acquired via a cryptocurrency exchange or mined. Despite this, not every exchange involves the purchase of crypto. The cryptocurrency tax in India indicates the government's desire to foster a thriving crypto industry in the country. Many consider this to be the first move toward regulation. However, because a comprehensive regulatory framework is still a long way off, crypto taxation could be useful in regulating the cryptocurrency.

In India, how is cryptocurrency taxed?

The Finance Bill 2022 incorporated new laws for cryptocurrency taxation in India, which you should be aware of before engaging in any crypto transactions.

1. Crypto Tax Rate:

Any income derived from the sale of any VDA is taxed at a rate of 30% as per Section 115BBH. The holding duration of these kinds of digital assets will have no bearing on taxation.

2. Tax Exemption and Deduction:

Except for a deduction for the cost of acquisition, no deductions or exemptions will be available against VDA revenue (commission, brokerage, consultancy fees, etc.). There will be no exemption available for investing the sum in a house or specific bonds issued by REC/NHAI, etc. However, Section 87A relief can be claimed on such income.

3. Tax Break at the Source

To keep track of such transactions, the income is eligible for Tax Deduction at Source (TDS) above a certain monetary threshold. To assure TDS on such transactions, Section 194S has been introduced.

For example, if the transaction amount exceeds Rs. 10,000, the seller is required to pay 1% TDS on the transaction value.

4. Disclosure of Crypto Assets in ITR:

The Ministry of Corporate Affairs has already mandated the disclosure of gains and losses in virtual currencies. In the case of corporations, the value of cryptocurrencies as of the balance sheet date must also be stated. Currently, there is no disclosure needed for cryptocurrency in the ITR forms.

When Do You Have to Pay Crypto Tax in India?

In India, taxation of crypto applies not only on sale but also on practically all transactions involving it. Generally, includes:

1. Cryptocurrency Transactions

2. Mining for Cryptocurrency

3. Trading in Cryptocurrency

4. Receiving Crypto as a Gift

5. Airdrop/Rewards for Crypto Staking:

6. Getting Paid in Cryptocurrency

Conclusion

As a percentage of the total population, India is the fifth largest owner of cryptocurrency, and the taxation rules for it are changing. Taxation is the first stage in the Indian tax system by the government to control cryptocurrency transactions.