Many of us have begun trading in cryptocurrency. Are you aware that trading in cryptocurrency in India is taxed? In accordance with the common Income Tax Law, it states that all incomes are tax-deductible, i.e., the earnings of any source, controlled or not, are tax-deductible.
Do I have to pay taxes on cryptocurrency?
It is tax-deductible. The tax has to be paid, regardless of its legality.
Do I have to pay tax on the earnings of Airdrops or games that allow players to win, such as Axie Infinity?
The tax applies in this instance, too. The tax must be paid within the year in which the income was earned.
Do I have to cover tax due on cryptocurrency that I receive as payment for services?
Cryptocurrency is a form of payment. Its nature of the service (s) that it provides does not change.
As an example, being a freelancer and receiving payment in cryptocurrency is tax-deductible. What happens remains the same, i.e., you receive payment by a service company, which is, it’s considered a business transaction. This means it is tax-deductible.
How to Calculate Income Tax on Cryptocurrency Trading and Investing in India?
Investment and trading are two distinct concepts. To understand the concepts in depth, it is necessary to follow various strategies for trading. Trading is the process of purchasing and sale of crypto assets, and earning profits from the fluctuation in price over the course of a brief period. Investments can be both long-term and short-term, depending on the interests of the investor.
It is important to remember that derivatives like Futures and Options Trading are considered to be investments and not trading.
How do you calculate tax for an investor?
The tax on investors is calculated by the length of time they’ve had an investment in the asset.
Short-Term Capital Gain Tax (STCGT)
The amount of this slab is contingent on the total amount of revenue from the financial year by the sale of an investment within 3 years of purchase.
Profit = Sales Price – Cost of Acquisition – Commission or Brokerage
Long-Term Capital Gain Tax (LTCGT)
If the buyer plans to dispose of the investment within three years after the purchase, the Long-Term Capital Gain Tax will be imposed. The LTCGT tax rate is 20 percent is the base tax rate.
In this case, the taxpayer earns the benefits of indexation.
What is the Cost Inflation Index (CII)?
The index informs the investor of the current worth of an asset, taking into the context of consideration. The value is interpreted as the cost of the acquisition. So, the tax payable is reduced to a certain degree. In addition, the CII is identical and flat on all capital assets. In addition, there aren’t indicators for various assets.
The CII could refer to only the instance of LTCGT.
The profit is the sales price Cost of Acquisition Commission or brokerage (Cost inflation index * cost of Acquisition)
How to Calculate Tax on Trading?
The tax-deductible income is income earned on every trade made during the financial year. Trading is similar to operating an enterprise or business that is commercial. It also generates the business’s income.
It is therefore more beneficial to keep a record of your profit and perform calculations using the same day’s price to avoid price confusion regarding volatility.
Receiving Crypto as a Payment for Business
When dealing, the payment may take many forms. The party that pays isn’t able to accept payment with fiat currencies. However, they may make payments in tangible assets like diamonds, gold, as well as cryptocurrency.
No matter the mode of payment used, taxes are owed by the Government of India; the Income Tax Act states, all incomes are tax deductible. If you receive the money as Bitcoin in the amount of INR 100, you could be taxed as high as 30 percent, i.e., you will be required to prove the profits for INR 70 and invest it in accordance with the interest rate you have earned.
If you decide to invest all in INR 100, it indicates that you’ve gotten the entire government’s share of funds without their permission or consent It could create problems when a higher official inquires regarding the source of the money you have invested up to the present time.
GST on Crypto Payments
The majority of the time, GST is a consumption-based tax, i.e., if you purchase cryptocurrencies in India, the GST is applicable to you. It is important to remember that the products or services offered to foreign customers are considered to be an export. This means that GST is not a consideration for exports by India.
However, receiving cryptocurrency payments and converting them to INR at one of the cryptocurrency exchanges in India states that you’re receiving money in the form of fiat currency. As suc,h you don’t get the Firc.
The law that allows the acceptance of cryptocurrency or any other digital asset in exchange for the sale of goods or services is not currently in place. Therefore, the GST is in effect.
Booking Loss During the Financial Year
Losses should be disclosed when filing income tax returns. If you invest in financial instruments, you may suffer Capital Loss in the short as well as the long term.
Filing Income Tax Returns
The three types of forms you have to fill out, based on the situation, for example:
- Only Investment ITR 2: If only made investments in cryptocurrency, you need to submit ITR 2, including the Capital Gains Tax and the Salary.
- Crypto-related Business Entity ITR 3: Intra-day traders, Crypto Miners, or any full-time, crypto-related job in the classification of crypto-related businesses must complete ITR 3. It encompasses everything that is on ITR 2. It also includes your business income.
- Salary-earning person with other income ITR 1: Generally, ITR 1 is designed only for those with an income of less than 50 lakhs. It includes Pension, Salary, or a specific rental Income(s). If you’ve invested in crypto, you are recommended to fill out either ITR 2 or ITR 3, regardless of the category that you satisfy.
Are commissions or referrals tax-deductible? GST?
Absolutely, regardless of whether you are within the INR 20 lakh GST exemption limit. In addition, you might require GST registration to pay GST.
I don’t have my trading past. What can I do to get it?
It is recommended to connect to the assistance of the exchange on the exchange you are trading. Exchanges ensure that your ledger is secure if they are asked by authorities for the details of your transactions.
Income Tax on Crypto-to-Crypto Trading
As mentioned earlier, the trading industry is a commercial enterprise. Therefore, taxes are not part of the equation. It is the Net Profit, or loss, determined during the year by adding all purchases and sales is the amount upon which tax is imposed.
You must calculate the profit and loss transactions in a separate manner, i.e., the profit is taxed, and the loss could be put into the following financial year.
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