Table of Contents
The world has undergone significant changes, characterized by advanced modernity and technologies. As a result, how people save money and invest for future wealth creation has also evolved. Despite extreme volatility, cryptocurrencies have become the most popular trend in the world’s investing markets. The total market value of cryptocurrencies significantly declined in 2022, from 2.24 trillion in January 2022 to less than one trillion in December 2022.
Due to its decentralization, no Governments or other centralized financial organizations have any authority over these digital currencies. The proceeds from its sale, trade, or transfer are nevertheless subject to taxation by the Government.
In the Union Budget 2024, a flat 30% tax was implemented on all gains arising from the sale of cryptocurrencies, causing a stir within the Indian crypto community. To deepen this unrest, the Budget 2023 also remained unchanged on the tax rate. However, cryptocurrency investors must know there are various ways of avoiding crypto taxes on cryptocurrency profit. For more information about how to avoid crypto taxes, continue reading.
SOURCE – https://nationalseniors.com.au/news/finance/cryptocurrency-a-guide-to-investing
Is crypto taxes in 2024 is taxed in India? What are the taxes?
In India, cryptocurrency is subject to taxation. Before 2022, the Indian Government did not have an official stance on classifying crypto assets or their tax. However, in 2022, the Indian authorities acknowledged the presence of cryptocurrencies in India and classified them as Virtual Digital Assets (VDAs), introducing a taxation framework.
According to this framework, individuals are required to pay a 30% tax on profits made from trading, selling, or spending cryptocurrency, as well as a 1% TDS tax on the sale of crypto assets exceeding Rs. 50,000 (Rs. 10,000 in some cases) in a single financial year.
Calculating tax on cryptocurrency transactions can be challenging. So sign up with crypto tax software, and get your crypto taxes calculated within minutes, accurately, and efficiently!
How is crypto taxes in 2024 is taxed in India?
According to the Income Tax Act, cryptocurrencies, tokens, NFTs (Non-fungible tokens), and all types of crypto assets are Virtual Digital Assets (VDAs). They will be liable to a 30% tax (plus any applicable surcharge and 4% cess) on income from cryptocurrency trading.
Professional traders, private investors, and anyone who transfers cryptocurrencies within a given financial year are subject to this tax. So, individuals must pay tax on cryptocurrency whenever they make the following transactions:
- Trading crypto for crypto, including stablecoins.
- Selling crypto for INR or another fiat currency.
- Spending crypto on goods and services.
However, the 30% tax will sometimes not apply when the gains are viewed as income. In that case, individuals must pay taxes as per their individual tax rates. The Income Tax Department considers cryptocurrency income as follows:
- Mining coins
- Gifting crypto
- Getting paid in crypto
- Airdrops
- Staking rewards
However, if one sells, trades, or spends these cryptocurrencies in the future, they may be liable to a 30% tax on any profits.
Further, a 1% TDS is deducted on the transfer of a crypto asset. There are a few crucial considerations about crypto TDS one must know:
- If crypto trades are made on Indian exchanges, TDS would be withheld by Indian exchanges and will be given to the Government.
- The buyer is responsible for withholding TDS when transacting through P2P platforms or foreign exchanges.
- TDS will be imposed at 1% on both the buyer and the seller in crypto-to-crypto trades.
Indian investors face a challenging situation regarding losses from crypto investments. Section 115BBH prohibits the offsetting of crypto losses against crypto gains, as well as against any other gains or income. Furthermore, crypto-related expenses, except for acquisition or purchase price, cannot be claimed as a deduction by Indian crypto investors.
However, there are a few instances in which crypto investments are not subject to taxation in India. These include holding onto crypto assets, transferring crypto assets between one’s own wallets, receiving a gift of up to Rs. 50,000 in crypto from friends and relatives, and receiving a gift of any amount in crypto from close family members.
What will be the penalties for avoiding taxes on cryptocurrency?
Indian crypto investors must also know that the Indian Government levies penalties if traders do not comply with the TDS rules.
According to income tax rules, failure to deduct and pay TDS to the Government can result in fines and penalties up to 100% of the TDS amount, as well as, in some circumstances, imprisonment for a term of three months to seven years together with a fine.
How to legally avoid crypto taxes in 2024?
How to avoid paying taxes on crypto is a very crucial question, and whether there are crypto tax loopholes that can be utilized. Here are four ways how to avoid crypto taxes:
1. Hold cryptocurrency for the long term
According to experts, owning cryptocurrency for a long time provides advantages similar to holding volatile assets. The most uncomplicated strategy to reduce crypto taxes is to sell it after a long-holding period, i.e., one year. Till they become long-term property, hold onto the assets and postpone any decision to sell them.
2. Sell crypto during a low-income year
Any profits/gains arising from the sale of crypto assets are subject to taxation based on an individual’s taxable income. Given this calculation method, individuals can consider selling their crypto assets during a low-income year. Doing so would result in a lower income tax rate for that financial year.
3. Get indirect exposure to crypto
Experts also believe that finding a technique to get indirect exposure to cryptocurrency assets is one of the most efficient ways to reduce tax obligations.
Many global investing platforms have launched an indirect investment option for Indian investors who want to participate in cryptocurrencies. For Indian investors, this means that their investments in cryptocurrencies would be taxed using the Reserve Bank of India’s liberalized remittance scheme (LRS), as opposed to the direct method, which imposes a 30% tax on cryptocurrency earnings. In other words, long-term capital gains will be taxed at 20% with indexation advantages, whereas short-term capital gains will be taxed according to the individual’s tax bracket.
4. Maintain your winnings in stablecoins
Stablecoins are tied to a different currency, which makes them less unpredictable than cryptocurrencies like Bitcoin and Ethereum, whose values are determined by a demand and supply system and are thus more volatile. Therefore, using coins pegged to a different currency might save taxes while ensuring long-term investments’ security.
Conclusion
In conclusion, there are legit ways to reduce crypto taxes in 2024, even though the rules and legislation governing them are still developing. Before making any choices involving investments in cryptocurrencies, it is critical to stay updated on any changes in tax laws and regulations.
With careful planning and attention to the rules and regulations, it is possible to avoid or minimize crypto taxes in 2023.
With powerful crypto tax software, you can easily sync all your crypto transactions from supported exchanges and wallets in India. You will get a comprehensive view of your diversified portfolio and net tax liability in just minutes. Plus, with the option to download and file your taxes with precision, you will have peace of mind knowing that your crypto taxes are taken care of.
DISCLAIMER: This article is not meant to be giving financial advice. Please seek a registered financial advisor for any investments.
- Afcons Infrastructure IPO: Should You Invest? A Comprehensive Analysis - October 25, 2024
- 4 Smart exit tips for mutual funds - September 14, 2024
- Startups in joy: Angel tax abolished! - September 13, 2024
