Is Bitcoin Income Taxable In India?

 Taxation laws for cryptocurrency income are still in its infancy in India, which is why it is important to get clarity

Investment in cryptocurrencies such as Bitcoins has become quite popular among a niche group of investors. However, the rules related to taxation on various cryptocurrency transactions are not well understood by everyone. This can lead to improper tax filing, resulting in unnecessary notices and verification from the tax department. Let us take a look at various cryptocurrency transactions and the applicable taxes.

Is cryptocurrency income taxable in India?

A simple answer to the question whether Bitcoin income or other cryptocurrency income is taxable in India is ‘Yes’. However, there are different types of Bitcoin income and the taxation rules are different in such cases. In India, items like Bitcoin or other cryptocurrencies are treated as Virtual Digital Assets (VDAs). Income derived from these digital assets are taxable as per Section 2(47A) of the Income Tax Act. VDAs include various types of crypto assets such as tokens, NFT and cryptocurrencies like Bitcoin, Ethereum, Litecoin, Ripple, etc.

What is tax on Bitcoin / Cryptocurrency in India?

As per the new rules, income derived from selling, trading or swapping of VDAs attracts a tax of 30%. This tax is applicable for both short-term and long-term gains. Also, the same tax rate is applicable irrespective of whether the income is shown as capital gains or business income. In addition to the 30% tax rate on crypto transactions, an additional 4% cess is also applicable. As per Section 194S, TDS of 1% is levied on the sale consideration. This is mandatory for transactions that are worth more than Rs 50,000 in a given financial year.

Tax on Airdrops – This is the process where any cryptocurrency tokens or coins are deposited into a specific wallet, usually without consideration. This can be done for promotional purposes to ensure adequate liquidity for a new cryptocurrency in the initial stage. The applicable tax rate on Airdrops is 30%.

Tax on Bitcoin mining – The mining of cryptocurrencies like Bitcoin is done via specialized hardware and software. A miner can be rewarded with a certain amount of cryptocurrency or other rewards. Tax on mining cryptocurrency in India is a flat 30%.

Tax on cryptocurrency staking/forging – This is the process where you generate new blocks in the blockchain. It is usually done via the Proof-of-Stake algorithm. For your efforts, you can get newly generated cryptocurrency. Or, you can also earn commission fees. In cryptocurrency staking, you can earn a specific rate of interest. For both forging and staking of cryptocurrency, the derived income is taxed at 30%.

Tax on crypto gifts – In India, VDAs are treated as movable properties. So, any crypto gifts are categorized in the same bracket and taxed accordingly. When filing your income tax, you can show crypto gifts in the section – ‘Income from other sources’. Regular slab rates will apply if the value of the gift is in excess of Rs 50,000. Crypto gifts from a relative will not attract any tax, as long as value is less than Rs 50,000. Crypto gifts arising from special occasions such as marriage, inheritance of a will, etc. are tax free.

No concession for crypto loss

To prevent misuse of crypto laws and promote financial responsibility, no tax rebate or concession is allowed for losses resulting from crypto transactions. It means that crypto losses cannot be shown as an expense against any income. You cannot offset crypto losses even against crypto income. This implies that you have to bear the crypto losses from your own pocket. You cannot use such losses to reduce your tax liability.