How Is Cryptocurrency Taxed in India?

India has decided to enforce a 30% tax on profits from crypto trading. It is turning out to be a blessing for the country's digital-asset exchanges. 

Although it may look counterintuitive that an abrupt tax will induce individuals to flock to digital tokens, the measure was seen as legalizing an industry that's been in regulatory oblivion amid fierce defiance from India's central bank. Said by Shetty, "anticipates several 100 million people in the country to begin investing in crypto in the following two to three years. 

"Investors are witnessing a heap of transparency and clarity now with taxation reported in the budget," said Shetty in an interview. "Earlier, people were ignoring to think if cryptos were permissible or not permissible."

According to the exchange, registered users of CoinSwitch rushed to 15 million as of January from 1 million about a year ago, and part of the current increase in sign-ups was because of its consumer education campaign. No one bourses revealed how numerous customers they included in total since Feb. 1. 

1. Income tax return in cryptocurrency gain     

Considering the cryptocurrency is not previously legitimate by the Reserve Bank of India (RBI), it cannot run from taxability. Capitalists gaining profits from the sale of cryptocurrency should pay income tax.

Besides being exempted by the Income Tax Act, total earnings are taxable. Till we obtain any explanation from the income tax department, the investors or buyers of crypto must pay income tax on the transactions depending on the nature of the transactions.

According to the usual income tax rules, the gains on the crypto-transactions could become liable to tax as (i) Business income or (ii) Capital gains. This categorization will rely on the investors' purpose and nature of these transactions.

If there are regular trades and increased volume gains from the crypto transactions then it will be taxed as 'business income'.

Nevertheless, the taxes will be applicable as 'capital gains' if the objective of holding them is mainly to benefit from the longest appreciation in value with more irregular trades. 

The nature of the category has to be considered for all taxpayers, and taxpayers must take the assistance of an expert like Tokyotechie for proper reporting.

2. Reveal cryptocurrency gains when filing income tax return in India

It's essential to understand that the gains originated from the sale of cryptocurrencies can be categorized as either capital gains or company income. This category will determine which tax return form one must file and how often tax will be charged on the gains.

Given Section 2(14) of the Income-tax Act 1961, a capital investment means property of any sort maintained by a person, either or not associated with his company or occupation. The term 'property', nevertheless has no legal meaning, yet it symbolizes each feasible interest which a person can receive, hold or enjoy.

"So, any profit that is occurring from any transmission of cryptocurrencies should be taxed as capital gains. Nevertheless, if the transactions are important and regular, it might be retained that the taxpayer is trading in cryptos. In this instance, the gains from crypto sale would be taxed as company income," said deputy general manager, Naveen Wadhwa.

The profits from bitcoins or virtual currencies investments are taxable as capital gains. One requires to calculate the holding period to calculate capital gains. If cryptocurrencies are held for 36 months or more, the profits would be taxable as long-standing capital gains (LTCG). Less than 36 months will be short-lived capital gains (STCG).

"According to the relevant tax-payer slab rates, small-termed assets profits in India are taxable. And long-lasting capital gains are taxable at the flat rate of 20% with the advantage of indexation," added Wadhwa.

Individuals holding taxable income above ?50 lakh have to fill ITR mandatorily in Schedule AL in ITR forms, which includes details related to investments in securities and mutual funds comprising cryptocurrencies.

Furthermore, consider a company or a partnership firm that has invested its company funds into a cryptocurrency. In that event, they must demonstrate it in their balance sheet as they have to track the accounting standards.

During the 'mining' process on the taxability of bitcoins earned, Wadhwa said, "Bitcoins developed throughout the 'mining' procedure are classifiable as self-produced capital assets. Considering the cost of acquiring such Bitcoins is not known, the tax-payer can take advantage of a judgment of the Supreme Court in this instance of B.C. Srinivasa Setty [1981] 5 Taxman 1 (SC). In that event, it has been retained that if the price of purchase of an asset could not be observed, the machinery condition for calculation of capital gains will deteriorate. Thus, no capital gains can be taxed on such assets' transmission. Thus, Bitcoins created in the 'mining' procedure may be excused from tax."

Nevertheless, such a stand might request legal proceedings as the revenue department cannot be abide it as a capital receipt, he added

Remember that ITR-2 and ITR-3 are the relevant forms for tax returns for people who have capital gains or company income emerging out of cryptocurrencies.

3. In case of capital losses :

There is no charge from the income tax authorities about the treatment of capital losses. Nevertheless, if your sale transaction has eventuated in a loss, we recommend you consult an expert like Tokyotechie.  

4. If classified as business income :

Presume crypto transactions are stated as company income. In this instance, the significance of Goods and Services Tax (GST law) is even required to be reviewed. Any indirect or direct expenses will be permitted as conclusions from the gains on the sale of the crypto assets. The gains will be included in the other income and will be taxable according to the income tax slab rates. 

5. GST angle if treated as business income :

The taxable occasion for the implication of GST is the supply of services or goods or both. The idea of supply is comprehensive, and it protects a huge amount of transactions.

'Services' is described as everything other than goods, money, and securities. It contains activities associated with utilizing money or conversion by cash or any other mode for which a different concern is charged. 

Regarding the above description, GST may evolve suitable for buying and selling cryptocurrencies as the supply of services or goods.

The CEIB has suggested classifying cryptocurrencies as intangible assets and involving GST in every crypto transaction. Whereas the government has not defined its taxability, and the recommendation is under debate, a general rate of 18% may probably become practical in the future. 

If your revenue has surpassed Rs 20 lakh, you may have to think about paying GST on your revenue; please get in touch with Tokyotechie as we have experts who can guide you regarding filling the income tax return in cryptocurrency gain and offer you extremely satisfactory services. 

6. If classified as other sources of income :

Crypto-assets can even be conveyed as 'income from additional sources although filing ITR and taxed consequently. According to the applicable tax slab payer, income from additional sources is even included in the total income and taxed.  

Furthermore, there are thoughts to treat the gain from crypto assets as 'speculation company income' and taxable according to the most increased tax slab. Nevertheless, until any explanation is obtained from the department of income tax, the taxpayers can take advantage of categorizing it as capital profits or regular company income.

Although no explanation has been obtained from the department of income tax, it is necessary to report the profits in the ITR and pay taxes on the earnings. 

Why choose Tokyotechie

Tokyotechie has experts who can guide, help and assist you regarding the new confusing taxation of cryptocurrency profits. The company has years of experience in offering best crypto, blockchain, smart contract and DeFi related services to business and now has come up to resolve your cryptocurrency taxation problem in India. To file an income tax return on virtual assets  can be very complicated and thus it becomes hard for companies to apply for it. Obviously you need to know thoroughly about it before paying your tax related to crypto. Every new thing needs to be studied before implementing and when it comes to new laws and regulations in India, it's quite complicated and you need experts to handle that. In india your helping hand can be Tokyotechie that will offer complete assistance - from taxation process, filing of tax of crypto gain to helping you understand the process. We are here for you from the beginning till the end. So forget about the 30% tax and think about the positive aspect of this new development. Now you can freely invest or trade in cryptocurrencies in India by playing tax on capital gain from virtual assets. 

The system has become a bit strict but the brighter side of this rule is that it has streamlined the confusion regarding whether you can legally trade crypto in India. If there is still any confusion regarding the same you can anytime get in touch with Tokyotechie at or even through telegram : @TokyoTechie.