Taxation on Crypto🪙 : Cryptocurrencies that got ban in India (as of 2024)

In today's blog, we'll straight dive into what is the market condition for cryptocurrency in india (as of 2024) and how much tax we need to pay, if we are using cryptocurrency exchanges to trade/invest crypto.

As you know, gains from cryptocurrency are taxable in India. The government's official stance on cryptocurrencies and other VDAs(Virtual digital assets) was clarified in the 2022 Budget.

Beginning of Crypto Taxation

The Crypto taxation was introduced in the Budget 2022**. The outcome of the Union Budget 2022 is as follows:**

• The government officially categorized digital assets, including crypto assets, as “Virtual Digital Assets.” Income from the transfer of virtual digital assets such as crypto and NFTs will be taxed at 30% according to section 115BBH.

• No deductions, except for the purchase cost, will be allowed when reporting income from selling digital assets.

• You can't use losses from digital assets to reduce any other income.
  Imagine you invested in Bitcoin and later sold it at a loss of $1,000. At the same time, you earned $5,000 from your job.

  Normally, you might think you can subtract your $1,000 Bitcoin loss from your $5,000 salary, leaving you with $4,000 in taxable income. However, according to the rule, you can't do that. Your $1,000 loss from Bitcoin stays separate and doesn't reduce the $5,000 you earned from your job. So, you'd still report the full $5,000 as taxable income.

• If you receive digital assets as a gift, you'll have to pay taxes on them. Also, if you lose money on one digital currency, you can't use that loss to offset gains from another digital currency.

• 1% TDS will be applicable on all sell transactions of Virtual Digital Assets (VDAs) including cryptocurrencies and NFTs from 1 July 2022 according to Section 194S.

Which transactions involving cryptocurrencies will be subject to a 30% tax?

1. Spending cryptocurrencies to purchase goods or services.

2. Exchanging cryptocurrencies for other cryptocurrencies.

3. Trading cryptocurrency using fiat currency such as ₹(INR).

4. Receive cryptocurrency as payment for a service.

5. Receiving cryptocurrency as a gift.

6. Mining cryptocurrency.

7. Drawing a salary in crypto.

8. Staking crypto and earning stake benefits.

9. Receiving Airdrops.

How to calculate Tax liable on Crypto Gains ?

The amount of tax liable to you is on the profit you will gain from investing.

You can click here to calculate tax liable on Crypto.

Crypto Transaction Losses: What You Need to Know !

According to Section 115BBH, losses from crypto cannot be used to reduce any income, including gains from cryptocurrency.

So, a crypto investor cannot offset previous year losses from a crypto asset while filing ITR this year.

What is offset in Finance ?

"Offset" means to balance or counteract something.

In the context of finance or taxes, to "offset" a loss means to reduce the impact of that loss by applying it against gains or income. For example, if you have a loss from one investment, you might use it to reduce the amount of tax you owe on gains from another investment.

Moreover, In India, cryptocurrencies are not permitted to claim expenses related to their crypto activities, except for the acquisition cost or purchase cost.

For example, if you spent money on transaction fees, software, or other related costs while trading or managing your cryptocurrency, you cannot deduct those expenses from your taxable income. You can only subtract the amount you initially paid to buy the cryptocurrency (the acquisition or purchase cost) when determining your gains or losses.

Example Scenario

Eg: Mr X purchased Rs 60,000 worth of Bitcoins and later sold it for Rs 80,000. He also bought Ethereum worth Rs 40,000 and sold them for Rs 30,000. The exchange charged a trading fee of Rs 1,000.

Here, Rs 10,000 loss is not allowed to be offset against the gains of Rs 20,000. The entire Rs 20,000 income is taxed at 30%. Also, the trading fee of Rs 1,000 is not allowed as a deduction.

What was the situation of cryptocurrencies in India before the 2022 budget was announced ?

Cryptocurrency trading and investments were popular in India, but there was no formal legal framework governing them.

The Reserve Bank of India (RBI) had imposed a banking ban on cryptocurrencies in 2018, which prevented financial institutions from facilitating cryptocurrency transactions.

However, this ban was overturned by the Supreme Court of India in March 2020, allowing banks to once again provide services to cryptocurrency exchanges.

Before 2022, there was no specific tax regime for cryptocurrencies. This led to confusion among investors regarding how to report their earnings and whether they were subject to income tax, capital gains tax, or other forms of taxation. The absence of clear guidelines created a grey area that many were cautious about navigating.

Despite regulatory uncertainty, the popularity of cryptocurrencies was on the rise in India. Many young investors were drawn to the potential high returns, and several crypto exchanges saw significant growth in their user base.

The Indian government had expressed concerns about the potential misuse of cryptocurrencies for illegal activities, such as money laundering and financing terrorism.

There were also concerns about investor protection, given the volatile nature of crypto markets. The government had been considering various approaches, including a potential ban on cryptocurrencies or the introduction of a central bank digital currency (CBDC).

While there was optimism about the potential of blockchain technology and cryptocurrencies, there was also fear and speculation regarding a possible government crackdown or restrictive regulations.

Which cryptocurrencies got ban in India (as of 2024) ?

In the beginning of 2024, India had banned nine crypto exchanges for non-compliance with anti-laundering law in the country. These are :

• Bybit

• Kraken

• Gate.io

• Bitstamp

• MEXC Global

• Bittrex

• Bitfenix