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During the 18th G20 Summit held in New Delhi, Prime Minister Narendra Modi called for a swift implementation of the Crypto-Asset Reporting Framework (CARF). Contrary to expectations, the Indian government clarified its stance, refraining from any plans to impose a ban.
Emphasizing the indispensability of a global consensus on minimal regulations, India echoed the sentiment that localized rules would falter without robust international cooperation. Gita Gopinath, the Deputy Managing Director of the International Monetary Fund, echoed the need for collaboration in regulatory facets and macro-financial aspects.
Until there is a consensus, India will adhere to its existing regulations established through The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021.
India’s Crypto Regulation Landscape
In an attempt to define and categorize cryptocurrencies and non-fungible tokens (NFTs), the bill coined the term ‘Virtual Digital Assets’ (VDA) under Section 2(47A) of the Income Tax Act. This definition includes cryptographic data, tokens, or codes, excluding only gift cards or vouchers.
The income tax return (ITR) mandates reporting cryptocurrency gains under Schedule VDA. Tax liabilities in India concerning cryptocurrency transactions encompass various scenarios, including using virtual assets for purchases, trading VDAs with fiat currency, receiving airdrops, or earning through staking or mining activities.
Exploring The Taxation Terrain
The taxation policy mandates Indian citizens to report and pay taxes on cryptocurrency gains. Section 115BBH imposes a tax rate of 30% plus a 4% CESS on all gains from trading VDAs.
Additionally, Section 194S introduces a 1% Tax Deducted at Source (TDS) on VDA transfers exceeding 50,000 Indian rupees in a financial year since July 1, 2022. Unlike stock trading, the bill uniformly levies the same tax rate for short-term gains, long-term gains, and business income.
TDS Implementation And Its Implications
The TDS provisions apply to various transaction scenarios, compelling traders and investors to deduct a specified percentage at source and remit it to the central government. This TDS rule applies whether the transaction occurs on exchanges or peer-to-peer platforms.
India’s Tax Rules On Airdrops, Staking, Mining, And Gifts
Airdrops, a common promotional tactic in the crypto world, involve distributing free tokens to wallet addresses to raise project awareness. In India, these airdropped tokens are subjected to taxation at a rate of 30%, calculated based on their market value on the date of receipt, per Rule 11UA.
When a recipient decides to sell, swap, or utilize the airdropped tokens for transactions at a later date, any gains accrued are also subject to a 30% tax. This mandates careful record-keeping and proactive tax planning to ensure compliance with the taxation framework.
Staking, a mechanism employed in proof-of-stake (PoS) blockchains, involves participants locking up their tokens to validate transactions and earn rewards. In India, these staking rewards are treated as income and are subject to a 30% tax rate.
Furthermore, when these staked tokens are sold or transacted, any gains realized from these transactions are subjected to the same 30% tax rate.
Cryptocurrency mining involves validating transactions on blockchains, with miners rewarded in cryptocurrencies for their efforts. In India, the crypto assets received through mining are taxed at a flat rate of 30%, irrespective of the expenses related to infrastructure or electricity costs.
The tax is levied based on the market value of the crypto asset on the date of the mining reward. In addition, if these mined cryptocurrencies are sold, swapped, or utilized in transactions, any gains derived from these activities are also subjected to the same 30% tax rate.
Gifts Received In Crypto
Cryptocurrency gifts from non-relatives exceeding 50,000 rupees are classified as “income from other sources” and taxed at regular flat rates. However, exemptions exist for certain scenarios. Cryptocurrency gifts received from relatives, through inheritance or a will, gifts on special occasions, or those contemplating death are exempt from taxation.
Hence, it’s imperative to accurately document the nature of cryptocurrency gifts to ascertain the applicable tax treatment.
Filing Tax Returns
Filing tax returns for cryptocurrency transactions requires meticulousness, utilizing sections in ITR forms catering to capital gains or business income based on the nature and intent of transactions.
As India’s crypto regulations align with global deliberations and frameworks like MiCA in the European Union, it would herald a more comprehensive regulatory landscape.
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