Taxation On Cryptocurrency:Bitcoin prices are currently hovering around $1 lakh. In fact, Bitcoin has seen a rise since the return of Donald Trump in the US Presidential elections. Besides, many other popular crypto currencies like Dogecoin, Cardano, Ether and Shiba Inu have also seen a jump of up to 150%. If you also have any of these crypto currencies or digital assets and are thinking of booking profits in them, then it is very important for you to understand the taxation rules applicable to the profits arising from them.
Capital Gains Tax on Crypto Assets
In the budget for the financial year 2022-23, the government had implemented a flat tax of 30% on profits from crypto currency and other virtual digital assets (VDAs). This tax rate is not linked to your income tax slab. Apart from this, 1% Tax Deducted at Source (TDS) has also been implemented on every transaction.
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How different are the tax rules applicable to crypto?
The tax rules applicable to crypto assets are different from traditional investments like mutual funds and stocks. If you make a profit on selling one crypto asset, but suffer a loss on another, you will still have to pay 30% tax on the profits. There is no flexibility to adjust the loss from one crypto to another nor can this loss be carried forward to future years. But if you are transferring from one wallet to another, it will be considered as internal transfer and will not be taxed.
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Tax calculation using FIFO method
The first-in-first-out (FIFO) method is used to calculate capital gains on crypto assets. This means that the asset which you bought first is sold first. For example, if you bought one Ether on January 1, 2024, and two more Ethers on November 1, 2024, if you sell two Ethers on November 12, according to the FIFO method, the January Ether will be sold first and then the November 1 Ether. Will be counted. This method applies to all cryptocurrency transactions.
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Tax on payment, airdrop and NFT
The tax also applies to crypto payments, airdrops and non-fungible tokens (NFTs). If you receive crypto assets in exchange for a service, it may be difficult to determine its cost. Airdrops are usually given to investors for free. But they are taxed at 30% based on fair market value. 30% tax is also applicable on profits on selling or swapping these tokens. 30% tax is also applicable on income from sale or transfer of NFTs. Only the purchase price or cost of acquisition is allowed to be deducted while calculating profits for tax purposes.
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It is wise to take advice from a tax expert
It is mandatory for all centralized, international and DeFi wallets (DEFI: Decentralized Finance Wallets) to be reported in income tax forms. Make sure that the TDS deducted by the exchange is linked to your PAN card and is correctly reflected in Form 26AS. The issue of taxation of crypto is somewhat complicated. If you have trouble understanding it, then do not hesitate to take the help of a chartered accountant for tax filing.
