Navigating the complexities of crypto taxation in India

Crypto taxation in India is evolving

The Union government imposed 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 sliver of hope that some regulation was in the offing. Also, a taxed asset also had a better standing in a country like India where grey areas in regulation and laws end up being pain points for exchanges and related platforms. 

Crypto taxation in India is evolving

The Union government imposed 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 sliver of hope that some regulation was in the offing. Also, a taxed asset also had a better standing in a country like India where grey areas in regulation and laws end up being pain points for exchanges and related platforms. 

That said, there was a strong decline (60-80%) in trade volumes among compliant Indian exchanges as investors migrated to using non-compliant global ones for their trades.

That said, there was a strong decline (60-80%) in trade volumes among compliant Indian exchanges as investors migrated to using non-compliant global ones for their trades.

On March 7, 2023, the Union government brought the crypto sector under the provisions of the Prevention of Anti-money Laundering Act, 2002 (PMLA). As per the Act, crypto entities will be ‘obligated’ to record transaction and client data, monitor compliance, and report suspicious activities. This is a recognition of the growing importance of the sector and need for accurate activity tracking. This does indicate that the government is not planning to ‘ban’ the sector, as some speculate. 

On March 7, 2023, the Union government brought the crypto sector under the provisions of the Prevention of Anti-money Laundering Act, 2002 (PMLA). As per the Act, crypto entities will be ‘obligated’ to record transaction and client data, monitor compliance, and report suspicious activities. This is a recognition of the growing importance of the sector and need for accurate activity tracking. This does indicate that the government is not planning to ‘ban’ the sector, as some speculate. 

Under PMLA, KYC and enhanced due diligence is 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 work with the government on red-flagging problematic transactions. In this manner, crypto exchanges will also function as reporting entities.

Under PMLA, KYC and enhanced due diligence is 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 work with the government on red-flagging problematic transactions. In this manner, crypto exchanges will also function as reporting entities.

Overall, the message from the government seems to be clear: Invest safely and declare your taxes.

Overall, the message from the government seems to be clear: Invest safely and declare your 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 permit investors to offset losses in one crypto asset with gains in another. Therefore, it is advisable not to spread investments in multiple assets. Instead, sticking to a chosen list of assets that the investor may be confident about is a better way to approach the crypto portfolio. Given that crypto enjoys 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 permit investors to offset losses in one crypto asset with gains in another. Therefore, it is advisable not to spread investments in multiple assets. Instead, sticking to a chosen list of assets that the investor may be confident about is a better way to approach the crypto portfolio. Given that crypto enjoys 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 do not currently follow Indian regulations with respect to TDS deduction and record keeping. It is prudent on the investor to ensure that he/she is abiding by Indian laws. Therefore, we advise investors to trade in Indian exchanges which have adopted the requisite measures as needed by the law. The KYC steps are indeed a pain point for investors as well as the exchanges – but once this hurdle is crossed, the experience can be smooth and on par with global brands.

Choosing the right exchange: Global exchanges do not currently follow Indian regulations with respect to TDS deduction and record keeping. It is prudent on the investor to ensure that he/she is abiding by Indian laws. Therefore, we advise investors to trade in Indian exchanges which have adopted the requisite measures as needed by the law. The KYC steps are indeed a pain point for investors as well as the exchanges – but once this hurdle is crossed, the experience can be smooth and on par with global brands.

Record keeping: To stay compliant with crypto tax laws in India, investors must maintain proper records of their transactions, including the date of purchase, the cost of acquisition, and the date of sale or transfer. Investors should also keep a record of the amount of crypto assets held and the value of the asset at the time of trade. Top Indian exchanges are equipped to maintain and display records on behalf of the investors. It is advisable the investors update and preserve their spreadsheet of transactions in their files regularly.

Record keeping: To stay compliant with crypto tax laws in India, investors must maintain proper records of their transactions, including the date of purchase, the cost of acquisition, and the date of sale or transfer. Investors should also keep a record of the amount of crypto assets held and the value of the asset at the time of trade. Top Indian exchanges are equipped to maintain and display records on behalf of the investors. It is advisable the investors update and preserve their spreadsheet of transactions in their files regularly.

Calculating & paying taxes: The government can now track all investor trades and can do so retrospectively as well. Investors should be law-abiding and declare their gains in crypto and NFTs annually. Many services and platforms can help collate transaction spreadsheets from multiple exchanges into a consolidated tax statement. Again, the onus is on the investor to ensure the accuracy of their tax filings.

Calculating & paying taxes: The government can now track all investor trades and can do so retrospectively as well. Investors should be law-abiding and declare their gains in crypto and NFTs annually. Many services and platforms can help collate transaction spreadsheets from multiple exchanges into a consolidated tax statement. Again, the onus is on the investor to ensure the accuracy of their tax filings.

Recovering or offsetting the 1% TDS: Investors who have sold their crypto assets during the year would have passed on 1% of sales as tax deducted at source (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 to be paid, it can be recovered from the government by declaring the same.

Recovering or offsetting the 1% TDS: Investors who have sold their crypto assets during the year would have passed on 1% of sales as tax deducted at source (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 to be paid, it can be recovered from the government by declaring the same.

Staying updated: Investors should stay current on the most recent 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 industry stakeholders. Some newsletters are also worth subscribing to. Investors should also discuss their approach with their tax agent for better clarity.

Staying updated: Investors should stay current on the most recent 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 industry stakeholders. Some newsletters are also worth subscribing to. Investors should also discuss their approach with their tax agent for better clarity.

Overall, the taxation regime for crypto in India is progressing in the right direction. The onus is now on investors to abide by the regime and make the ecosystem trustworthy and robust.

Overall, the taxation regime for crypto in India is progressing in the right direction. The onus is now on investors to abide by the regime and make the ecosystem trustworthy and robust.

Author: Vikram Subburaj, CEO, Giottus Crypto Platform

Author: Vikram Subburaj, CEO, Giottus Crypto Platform