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A Comprehensive Guide to Calculating Crypto Taxes

By May 4, 2023May 9th, 20234 minute read
Note: This blog is written by an external blogger. The views and opinions expressed within this post belong solely to the author.

Calculating crypto tax in India can be daunting, especially for those new to cryptocurrency investments. However, with the growing popularity of digital assets, it is essential to stay informed about tax regulations and obligations surrounding crypto investments. This comprehensive guide will help you accurately calculate your crypto taxes.

With the Indian Government’s willingness to engage with the virtual asset class, there is a growing sense of optimism about the future of cryptocurrencies in the country. While many questions about how the new regulatory framework will be implemented and enforced remain unanswered, the newly introduced tax laws will help crypto go mainstream.

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A Few Important Things to Know About Crypto Tax Regulations 2023

While there is a lot that still needs to be discussed by the Indian Government with the crypto enthusiasts, here are some rules that you must keep in mind to manage your investments smoothly:

      • Income from transactions involving virtual digital assets, including cryptocurrencies and NFTs, will be subject to a 30% tax at the end of each fiscal year.

      • Losses incurred from digital asset transactions cannot be offset against any revenue/income/gains.

      • Deductions other than the purchase cost are not allowed while calculating profits from VDAs.

      • Even if received as a gift, any digital asset will be subject to tax (If the market value of the crypto at the time of receipt exceeds Rs. 50,000).

      • Investors cannot offset losses from one digital asset with profits from another.

      • TDS of 1% on every VDA transaction is applicable. 

    Also, as stated in the Income Tax Act of 1961 Section 206AB: 

        • TDS will be imposed at 5% on any cryptocurrency transactions if an investor has failed to file an ITR in the two preceding years and the amount of TDS to be deducted in those two years was at least Rs. 50,000.

        • TDS requirements will be in effect even if an order is placed before July 1, 2022, but the transaction is completed after that date.

      How to Prepare Yourself for Cryptocurrency Tax Season?

      You must emphasize the need for more clarification regarding the norms of crypto taxes in India. 

      As stated above, you must pay a 30% tax on all VDA (Virtual Digital Assets) gains.

      Also, a 1% tax as TDS will be deducted for each crypto transaction. This TDS can be claimed back while filing the ITR.

      To ensure accurate tax calculations on your crypto transactions, it is essential to keep track of the following key points:

          1. Starting April 2022, consider all crypto assets purchased as a fresh slate for tax purposes.

          1. Some exchanges deduct tax as TDS in crypto. Post the deduction; the same is converted into INR and deposited as TDS with the Government.

        Income tax is to be paid in INR.

            1. When a taxpayer (individual) has income from VDAs, ITR 2,3, or 4 can be chosen, depending on the other income. 

            1. If you are an enterprise or institution, ensure you submit returns using the correct ITR forms, i.e., ITR 5 or 6.

          By adhering to these guidelines, you can avoid potential tax liabilities or penalties and comply with applicable tax laws and regulations.

          Read More: The Guide to Taxation of Crypto Airdrops

          Best Practices To Know When Filing for Tax Returns with Crypto Income 

              • Keep track of all your cryptocurrency transactions, including purchases, sales, trades, and mining rewards, in a single location.

              • Use reliable tax reporting platforms like TaxNodes to automate the tax filing process and ensure accuracy.

              • Calculate your tax liability based on the fair market value of your cryptocurrency holdings on the day you sold, traded, or exchanged them.

              • Report all cryptocurrency transactions, whether small or infrequent, to avoid any penalties or legal issues.

              • Pay the accurate taxes owed on your cryptocurrency gains or income, as failure to do so can result in penalties, fines, or legal action.

              • Keep abreast of any changes or updates to cryptocurrency taxation laws in India, as they are subject to change and can significantly impact your tax liability.

              • Reconcile and file ahead of the deadline to avoid penalties.

            To help you in your crypto journey, we at WazirX have collaborated with TaxNodes, a crypto tax computation and filing platform. We are also offering a special reward coupon to all WazirX users. 

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            Crypto taxation will help the ecosystem go mainstream. Calculating tax on 100s of transactions can be complicated. By understanding the basic principles of taxation, keeping accurate records, and staying up-to-date with tax laws and regulations, you can ensure that you file your tax returns correctly.

            Recently, the Indian Government has also introduced a new set of penalties for missing out on TDS provisions. So, to avoid such penalties, you must adhere to the laws, calculate taxes accurately and file your tax returns on time.

            Pro tip:
            It is essential to keep detailed records of your transactions, calculate your gains or losses, and report them accurately in your tax return. It is recommended to use platforms like TaxNodes when filing your tax returns to generate accurate reports and get expert advice tailored to your needs.

            Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn't represent any investment advice or WazirX's official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.
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