Navigating the complexities of crypto taxation in India
There is a saying that encapsulates the tax process and it goes like this: the only two things that are certain in life are death and taxes. The brilliant mind that conjured this up is probably trying to explain how wide the tax net is spread. A successful state tries to bring the most goods, services and individuals under the tax net to reap the best benefits. Governments have always caught up with new developments and brought them under the tax net. Crypto is no different.
There is a saying that encapsulates the tax process and it goes like this: the only two things that are certain in life are death and taxes. The brilliant mind that conjured this up is probably trying to explain how wide the tax net is spread. A successful state tries to bring the most goods, services and individuals under the tax net to reap the best benefits. Governments have always caught up with new developments and brought them under the tax net. Crypto is no different.
Crypto taxation in India is evolving
The Union government introduced a 30% tax on crypto profits in the 2022 budget. A 1% TDS on sales was also introduced. For a sector that was largely unregulated, the tax announcement gave the first glimmer of hope that some regulation was on the way. A taxed asset also had a better status in a country like India where gray areas in regulation and laws end up being pain points for exchanges and related platforms.
Crypto taxation in India is evolving
The Union government introduced a 30% tax on crypto profits in the 2022 budget. A 1% TDS on sales was also introduced. For a sector that was largely unregulated, the tax announcement gave the first glimmer of hope that some regulation was on the way. A taxed asset also had a better status in a country like India where gray areas in regulation and laws end up being pain points for exchanges and related platforms.
That said, there was a sharp decline (60-80%) in trading volume among compliant Indian exchanges as investors switched to using global non-compliant exchanges for their trades.
That said, there was a sharp decline (60-80%) in trading volume among compliant Indian exchanges as investors switched to using global non-compliant exchanges for their trades.
On March 7, 2023, the Union Government brought the crypto sector under the provisions of the Prevention of Money Laundering Act, 2002 (PMLA). Under the law, crypto entities will be “obliged” to record transaction and client data, monitor compliance and report suspicious activities. This is in recognition of the sector’s growing importance and the need for accurate activity tracking. This indicates that the government is not planning to “ban” the sector, as some are speculating.
On March 7, 2023, the Union Government brought the crypto sector under the provisions of the Prevention of Money Laundering Act, 2002 (PMLA). Under the law, crypto entities will be “obliged” to record transaction and client data, monitor compliance and report suspicious activities. This is in recognition of the sector’s growing importance and the need for accurate activity tracking. This indicates that the government is not planning to “ban” the sector, as some are speculating.
Under PMLA, KYC and enhanced due diligence are mandatory. What was only a best practice among crypto exchanges so far has become a unifying goal. The good thing is that crypto exchanges can cooperate with the authorities on problematic red flag transactions. In this way, crypto exchanges will also act as reporting entities.
Under PMLA, KYC and enhanced due diligence are mandatory. What was only a best practice among crypto exchanges so far has become a unifying goal. The good thing is that crypto exchanges can cooperate with the authorities on problematic red flag transactions. In this way, crypto exchanges will also act as reporting entities.
Overall, the message from the government seems to be clear: Invest safely and declare taxes.
Overall, the message from the government seems to be clear: Invest safely and declare taxes.
Navigating crypto from a tax angle
We believe that Indian crypto investors can become tax compliant and plan their investments better by following certain principles.
Navigating crypto from a tax angle
We believe that Indian crypto investors can become tax compliant and plan their investments better by following certain principles.
Building a crypto portfolio: India’s crypto tax regime does not allow investors to offset losses in one crypto asset with gains in another. Therefore, it is advisable not to spread investments in several assets. Instead, sticking to a select list of assets that the investor can be confident in is a better way to approach the crypto portfolio. Given that crypto has a higher tax rate (30%) than capital gains via other assets, investors must allocate a small percentage (3-5%) of their overall portfolio to crypto.
Building a crypto portfolio: India’s crypto tax regime does not allow investors to offset losses in one crypto asset with gains in another. Therefore, it is advisable not to spread investments in several assets. Instead, sticking to a select list of assets that the investor can be confident in is a better way to approach the crypto portfolio. Given that crypto has a higher tax rate (30%) than capital gains via other assets, investors must allocate a small percentage (3-5%) of their overall portfolio to crypto.
Choosing the right exchange: Global exchanges currently do not follow Indian regulations with respect to TDS deduction and record keeping. It is prudent for the investor to ensure that he/she complies with Indian laws. Therefore, we recommend investors to trade in Indian stock exchanges that have adopted the necessary measures required by law. The KYC steps are indeed a pain point for investors as well as exchanges – but once this hurdle is crossed, the experience can be smooth and on par with global brands.
Choosing the right exchange: Global exchanges currently do not follow Indian regulations with respect to TDS deduction and record keeping. It is prudent for the investor to ensure that he/she complies with Indian laws. Therefore, we recommend investors to trade in Indian stock exchanges that have adopted the necessary measures required by law. The KYC steps are indeed a pain point for investors as well as exchanges – but once this hurdle is crossed, the experience can be smooth and on par with global brands.
Record keeping: In order to comply with crypto tax laws in India, investors must maintain correct records of their transactions, including date of purchase, cost of acquisition and date of sale or transfer. Investors should also keep track of the amount of crypto assets held and the value of the asset at the time of the trade. Top Indian stock exchanges are equipped to maintain and display records on behalf of the investors. It is recommended that investors update and keep the spreadsheet of transactions in their files regularly.
Record keeping: In order to comply with crypto tax laws in India, investors must maintain correct records of their transactions, including date of purchase, cost of acquisition and date of sale or transfer. Investors should also keep track of the amount of crypto assets held and the value of the asset at the time of the trade. Top Indian stock exchanges are equipped to maintain and display records on behalf of the investors. It is recommended that investors update and keep the spreadsheet of transactions in their files regularly.
Calculate and pay tax: The government can now track all investor trades and can also do so retrospectively. Investors should be law abiding and declare their gains in crypto and NFTs annually. Many services and platforms can help aggregate transaction spreadsheets from multiple exchanges into a consolidated tax statement. Again, it is the investor’s responsibility to ensure the accuracy of their tax filings.
Calculate and pay tax: The government can now track all investor trades and can also do so retrospectively. Investors should be law abiding and declare their gains in crypto and NFTs annually. Many services and platforms can help aggregate transaction spreadsheets from multiple exchanges into a consolidated tax statement. Again, it is the investor’s responsibility to ensure the accuracy of their tax filings.
To recover or offset 1% TDS: Investors who have sold their crypto assets during the year would have passed on 1% of the sale as Withholding Tax (TDS) to the government against their PAN card. This can be offset against any tax payable on crypto at the end of the year. If there is no additional tax payable, it can be recovered from the government by declaring the same.
To recover or offset 1% TDS: Investors who have sold their crypto assets during the year would have passed on 1% of the sale as Withholding Tax (TDS) to the government against their PAN card. This can be offset against any tax payable on crypto at the end of the year. If there is no additional tax payable, it can be recovered from the government by declaring the same.
Keeping up to date: Investors should stay updated on the latest tax rules and regulations as the crypto sector continues to evolve in India. Major national publications, including Mint, cover the sector in detail with opinions from various stakeholders in the industry. Some newsletters are also worth subscribing to. Investors should also discuss their approach with the tax agent for better clarity.
Keeping up to date: Investors should stay updated on the latest tax rules and regulations as the crypto sector continues to evolve in India. Major national publications, including Mint, cover the sector in detail with opinions from various stakeholders in the industry. Some newsletters are also worth subscribing to. Investors should also discuss their approach with the tax agent for better clarity.
Overall, the tax regime for crypto in India is moving in the right direction. It is now the investors who are responsible for following the regime and making the ecosystem reliable and robust.
Overall, the tax regime for crypto in India is moving in the right direction. It is now the investors who are responsible for following the regime and making the ecosystem reliable and robust.
Author: Vikram Subburaj, CEO, Giottus Crypto Platform
Author: Vikram Subburaj, CEO, Giottus Crypto Platform
