Tax planning has become a very bleak possibility ever since the new tax regime of 30% tax arising on gains from all crypto assets without any set-off has come into effect.Nonetheless, there are quite a few things an investor should be aware of in order to make more informed decisions while investing in crypto assets and safeguard themselves from paying more taxes or any extra tax obligation arising due to lack of awareness of VDA tax rules.Prior to April 1, 2022, you were able to offset your crypto losses (from your gains) and apply the beneficial tax rate of 20% in case of assets held for an over 3-year duration.Many crypto investors might incorrectly file their prior years crypto taxes of FY 2021-22 and before as per the current 30% tax regime.The said regime has only come into effect from April 1, 2022, hence by doing so they might end up paying more taxes.For previous years, investors can still set-off their losses and take advantage of long-term/ short-term tax benefits.As a crypto investor, you are liable for taxes on all your crypto transactions, even if you have not transferred your gains to your Indian currency account.One of the biggest myths is that only those transactions which result in investors receiving the INR in their bank account are taxable, which is not true.
Any trading activity between two assets is also taxable based on your buy and sell prices of each crypto asset.Investors should trade with caution and need to track all their trading activities for gains and losses as that will impact their tax liability.Let’s assume an investor sells his BTC to buy ETH.The BTC that the investors have sold to buy ETH, will have to be computed for gain/loss calculation as per FIFO logic.
Such trades involve two transactions, first one being sale of BTC and second one being purchase of ETH.Hence sale of BTC is a taxable event which an investor needs to account for the purpose of taxation.Monitoring each transaction is critical for any investor and be aware of their tax exposure.
Crypto transactions undertaken outside of the regulated exchanges through DeFi wallets are also taxable even if no KYC formalities have been completed for such wallets.There is a misconception among investors, that only transactions they undertake on registered Indian exchanges are liable for tax as per the new rules of taxation, which is incorrect.All Indian residents, irrespective of whether they trade on Indian registered exchanges, international exchanges or DeFi wallets, even if there is no KYC, are equally liable for tax and must be disclosed while filing the tax returns.
Misconception of no tax liability for trades undertaken on such platforms can lead to scrutiny and tax burden in the future, which an investor needs to be careful of.Transfers made among multiple wallets of the same investor are not taxable transactions.While transferring crypto from one exchange/ wallet of a person to their own different wallet/ exchange is not a taxable transaction.Investors should be careful while computing their gains and losses that they mistakenly don’t offer such transactions for tax as they are not a taxable invention but merely movement of assets of a person between their own accounts.Careful attention is needed to track and mark such transactions in order to avoid paying extra tax.If a minor is undertaking crypto asset trading, his or her income is required to be computed and cannot be ignored for tax purposes.
As per the current law, a minor’s (individual below the age of 18 years) income is exempt only up to Rs 1,500 in any given tax year.If a minor earns an income greater than Rs 1,500, it will be taxed in the hands of the higher income earning parent.Even if trading in crypto assets was undertaken in a minor’s name, the gain/loss on such transactions is required to be computed separately before being attached to the higher earning parent’s Income Tax Return.Crypto transactions such as airdrops, interest from deposits can be taxed at the applicable slab rate.
While the flat 30% tax on all gains arising from crypto transaction and no set-off for loss transaction as per the new tax regime have led to a bleak possibility to do any tax planning, investors can, however, still treat income from assets such as airdrops, interest from deposit etc to be taxed at the applicable tax slab rate of a taxpayer, instead of offering everything for the maximum rate of 30%.This can reduce the tax burden and give relief on certain kinds of transactions to crypto investors.
Using VDA portfolio and tax tools has become critical for investors, which can help them TRACK, PLAN and COMPUTE their VDA taxes in order to manage their portfolio and also keep them updated with the gain/loss reporting on every single transaction, along with managing TDS and tax obligation.This will help them make more informed investment decisions and safeguard them from any extra tax obligation which one might not be prepared for.The author is the Co – Founder of TaxCryp.(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own.These do not represent the views of Economic Times).
