Synopsis: Virtual Digital Assets like Cryptocurrency and NFTs are taxable in India. The capital gains are taxed at flat 30% under Section 115BBH.
The article will talk about how cryptocurrency income from international exchanges is taxed under the Income-tax Act, 1961, as amended by the Finance Act, 2022. It briefly explains key provisions such as the 30% tax on crypto gains, the applicability of 1% TDS, and the concept of global income taxation.
The Rise of Crypto Investing via Global Platforms
Binance, Coinbase, and CoinDCX have made trading on the cryptocurrency market much easier and more accessible for millions of Indians during the last decade. The ease of access, 24/7 trading opportunities, and the potential for high profits ensured rapid growth, especially after 2020. India now stands tall as one of the world’s biggest crypto user communities, which is why the government decided to introduce taxation on cryptocurrency.
Types of Taxable Crypto Income
If you earn cryptocurrency from staking or airdrops, it is taxed as income based on its fair market value at the time of receipt. For mining specifically, the cost of acquisition is considered zero, meaning no expenses such as electricity or infrastructure costs can be included. India’s crypto tax framework was formalized though Finance Act 2022, introducing 2 key sections:
Section 115BBH – Flat 30%
Under Section 115BBH, a flat 30% tax rate (inclusive of surcharge and 4% cess) will be levied on the profits earned by way of dealing with virtual digital assets from April 1, 2022. This rate is equivalent to India’s highest income tax bracket and applies regardless of whether the income is from investments or business activities.
Section 194S – 1% TDS
The crypto taxation policy in India has introduced Tax Deducted at Source, where 1% of crypto transactions above a particular amount will be charged as Tax Deducted at Source (TDS). Whenever you carry out crypto trading, 1% of your transaction amount gets deducted and paid to the government.
No Deduction for Losses
Losses made by any form of virtual digital asset can’t be set off against gains from another form of VDA or another income source. Generally, deductions are only allowed in the form of acquisition costs. Besides, crypto trading losses in FY 24-25 don’t carry forward into future years.
Filing of Returns
Cryptocurrency tax will be reported using ITR-2 and ITR-3, as capital gain or business income. Cryptocurrency profits will specifically have a schedule under the ITR forms known as Schedule VDA.
Global Exchanges
The incomes earned from Binance, Bybit, or any other crypto trading platform that is not Indian fall under the Income Tax category in India. The reason for this is that although such platforms are foreign in nature, their taxation rules apply to everyone residing in India regardless of where they conduct business. However, foreign crypto exchanges don’t deduct 1% TDS like other Indian platforms would, so it is up to the individual to report trades and ensure they pay the 30% flat tax on profits. This means that individuals trading using foreign crypto exchanges, such as Binance or Coinbase, will have to manually record their TDS payments and submit them when filing their TDS returns.
Also read: LTCG Tax Around the World: Which Countries Impose the Highest Taxes on Investors?
Double Taxation Concerns
This is a real and growing concern for Indian crypto investors, especially those with income sources abroad:
- Cryptocurrency-to-cryptocurrency transactions are treated as two separate taxable transactions in India. You pay taxes twice when selling Coin A and purchasing Coin B, and then selling Coin B. As a result, you end up with a cascade of taxes.
- Foreign currency income, If an Indian taxpayer earns digital currency from a platform based in the United States and that nation also levies taxes on their earnings, there may be a risk of double taxation. India has DTAA with many nations, including the US, but crypto is not explicitly discussed in most of these agreements, leaving room for doubt.
- GST on exchange platforms, It’s uncertain whether the government of India will impose GST on cryptocurrencies, and the existing GST Act doesn’t sufficiently address VDAs, leading to ambiguity.
- Since India prohibits its taxpayers from offsetting capital losses incurred due to cryptocurrencies against their gains in other coins, the investor ends up paying 30 percent taxes on both the gain and loss.
Conclusion
Cryptocurrency may operate without borders, but taxation does not. Income earned from global exchanges is fully taxable in India under the Income-tax Act, 1961, as amended by the Finance Act, 2022. The introduction of a flat 30% tax rate, along with 1% TDS and strict reporting requirements, reflects the government’s intent to regulate and bring transparency to crypto transactions.
Whether you use CoinDCX, Binance, or Coinbase, the Indian tax authorities expect full disclosure of all crypto income under Schedule VDA. Non-compliance carries serious risk and in failing to pay TDS can result in penalties equal to the unpaid TDS and a potential jail term of up to six months.
Written by Shrikara K
