Managing a cryptocurrency portfolio in India means more than just keeping track of your assets. It’s important to comply with tax laws related to Virtual Digital Assets (VDAs) to avoid legal issues.
Crypto Tax Overview
In India, all profits from cryptocurrency transactions are taxed at a flat rate of 30%. This applies to selling, trading, or using digital assets, including NFTs. A 4% cess on the tax amount increases your liability. Losses from crypto cannot offset other capital gains.
Income from airdrops, staking, and mining must be reported. Staking and mining rewards are taxed as income when received, and costs related to mining cannot be deducted.
1% TDS Compliance
A 1% Tax Deducted at Source (TDS) applies to all crypto transactions. This includes trades on exchanges and P2P platforms. For individuals, the TDS requirement is waived for transactions below ?50,000 per year.
Both buyers and sellers are subject to TDS during crypto-to-crypto trades, making it essential to keep track for tax filings.
Tax on Gifts and Airdrops
Crypto gifts over ?50,000 from non-family members are taxable as income. However, gifts from close family or special occasions are tax-exempt. Airdropped tokens are taxed at their market value upon receipt.
DeFi Challenges
Decentralized Finance (DeFi) brings unique tax challenges. Earnings from activities like liquidity mining are taxed as income. Currently, there is no specific guidance from the Income Tax Department for DeFi, making compliance more complicated.
Best Practices for Management
Effective portfolio management requires careful tracking of all transactions. Records should be kept for trades, swaps, and staking activities to help calculate gains and TDS payments.
Transactions should be categorized properly for tax returns. Frequent traders may need to file ITR-3, while occasional traders can use ITR-2. Consulting tax professionals can also help ensure compliance.
Conclusion
In India, tax management is now an essential part of cryptocurrency investing. With a 30% tax rate and 1% TDS on transactions, detailed tracking and planning are crucial. Staying informed about tax implications helps investors remain compliant and optimize returns in this evolving landscape.
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