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 This question comes mere few days after India’s government announces a tax on crypto gains. You are probably here to get clarity over Indian taxation rules( that means I’m your Man for this).

“There will be a 30% tax on any sort of crypto gains and a 1% TDS on any crypto transaction” . You are reading this at every news article. Let’s break it down!

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The Finance Bill defines virtual digital asset ( fancy name for crypto) as any any number or token that is generated cryptographically or any other means, and provides a digital representation of economic value.

Confused? Let’s Simplify:

In 2009, Satoshi Nakamoto (Pseudonym for an individual or a group of individuals, we’ll probably never know) created a revolutionary database called Blockchain that can store data in cryptographically encrypted form and eliminated the need for a centralized database storage(banks for transaction records and bank account balances and facilitating transactions) facility (We won’t much get into why centralized data base storage facilities were rendered redundant but I will leave you with this- “ The database is coded in such a way that its copies at any time is available on internet to anyone who wishes to access it and changing the content of this database is practically impossible). Along with the introduction of this database, a new class of asset called “Crypto-Currencies” ( currencies generated through cryptographic means) also entered the stage with the introduction of Bitcoin. It is a virtual asset which is non-existent in its physical state and exists in the form of a combination of numbers and alphabets on the blockchain. It was Satoshi’s vision to see the Bitcoin being used as the global currency. These crypto-currencies represent economic because some people( Like Elon Musk) believe that crypto-currencies are the future of money so they accept it as an exchange of value, however many see it as an asset class to speculatively invest in.

By now you know that Indian Rupee or US Dollar are different from Crypto-currencies because the former are under sovereign's control. Do note that money in your bank account is merely electronic representation(e-money) of INR or USD. E-Money is different from Digital money(Crypto)

“30% tax on gains”

Whenever you sell any crypto-token( crypto-currencies, NFTs, or any digital asset formed through cryptography is called a token) at a gain, Government will take 30% of that gain. Usually, when we suffer a loss in your investments, Indian government allows us to offset( reduce our income tax by the capital loss incurred) our loss by the capital loss incurred. However, our losses in crypto can not be offset against your Income Tax. ( Yeah!, Government is like-: If you make a loss, Government will say that it is your loss, your risk and when you make a profit, government will come with open hands saying that this his our profit so cough up 30% tax). You must be thinking why do we have to reveal our crypto-gains. This is why TDS comes into play.

“1% TDS on all crypto-transactions”

Any transaction involving exchange of assets where one of them is a virtual digital asset will be treated as such that the person receiving the virtual digital currency will be taxed at 1%. Whether you are buying crypto for the very first time, or someone gifted you crypto, all will be taxed. Usually, the main purpose of TDS is to ensure all transactions are recorded by Income tax department.

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By now I hope you have some clear idea of what the crypto tax system going to be like.

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