Many governments around the world have adopted a tax system applicable to crypto currencies. The tax rates and rules vary greatly, but there is a common theme. By most accounts, tax on cryptocurrency should be treated similar to other asset classes such as stocks and bonds: as long as your total taxable income is below your taxable income limit, you should report all income in the year, including cryptocurrency profits. In general, taxes on cryptocurrency profits are likely to vary from country to country, and even from state or city to state or city. In India crypto tax is the same throughout the country irrespective of the state in which you reside. We will look at the crypto tax in detail.
First of all, we need to know about Cryptocurrency?
A cryptocurrency is digital money that uses cryptography for security and various rules for its generation, transfer and possession, as well as its value relative to other currencies such as the US dollar or Euro.
How does Cryptocurrency work?
A cryptocurrency works like a Ponzi scheme. It involves incoming capital from new investors to pay the dividends to existing investors. This is done by creating a limited amount of virtual coin units, called Bitcoins. As the Bitcoin has limited supply (just 21 million in total), the price is bound to go up.
Tax of transactions in India
A transaction made in cryptocurrency is treated as a taxable event because it is treated as a stock market transaction (tokens being traded). The person who buys the token has to pay capital gains tax at the rate of 30% on certain conditions and to the local tax authority within 30 days of purchase. The person who sells the token, on the other hand, has to pay income tax at source based on the capital gains (in case of transfer of tokens) or less than 100% in case they are reinvested in another token. Another important point to note is that a transaction in cryptocurrency will be treated as a financial asset, which is subject to the provisions of the Income Tax Act, 1961. You are required to report any transaction in cryptocurrencies and pay tax on total turnover by submitting an entry in your annual income tax return.
How to calculate and pay tax on cryptocurrency in India?
The amount to be paid as capital gains tax is calculated by the formula: x-y(100%-y). In case of reinvestment of cryptocurrencies, you need to calculate the cost basis from where you have purchased the token (except for some exceptions like holding tokens for less than a year). This cost basis can be found on your Ethereum wallets under the History tab. The difference between these two will usually be the profit you made through trading. A lot of people search on the web about how to pay crypto tax. There are different services available across the web which will help you in filing your crypto tax. I will Suggest you to use Binocs as it is reliable and easy to manage.