Yes, your favorite cryptocurrency is taxable, and no doubt 2021 has been proven to be the big year to give cryptocurrency a new hipe and a whole new vibe as well.

According to the Government Guidelines, this 1st February 2022: Any Income from transfer of any Virtual Digital asset shall be taxed at the rate of 30%.

So this clearly means that if you have a profit of 10,000 INR & as per the guidelines the tax is 30% i.e (3000 INR) then your Net Earning will be 7000 INR.

Don’t get overwhelmed we have a lot to share about cryptocurrency taxes 2022, Do you have to pay taxes on cryptocurrency gains, and a lot more questions like this.

Cryptocurrency taxes 2022 if you have a loss?

My friend! Government is clearly not bearing any kind of Loss if there is any downfall in cryptocurrency i.e. if you have bought cryptocurrency of 1,00,000 INR and sold for 95,000 INR & you got 5000 INR loss so there are no cryptocurrency taxes on this loss, the income tax on cryptocurrency is only on profit.

Cryptocurrency taxes 2022 if you have profit as well as loss?

Suppose you have invested 1,00,000 INR in cryptocurrency, separately 50,000 on Bitcoin and 50,000 on Ripple. When you bought Bitcoin for 50,000 INR sold for 70,000 INR & got a profit of 20,000 INR. Similarly, you bought Ripple for 50,000 INR Sold for 40,000 INR & got a loss of 10,000 INR.

So you earn a profit of 20,000 INR from Bitcoin & at the same time also get a loss of 10,000 INR from ripple. So the tax will be on the total income you earned profit i.e. 20,000 INR – 10,000 INR i.e. 10,000 INR.

That is 30% of 10,000 INR so the cryptocurrency tax will be 3000 INR in this Rupee but that too “within the year”. There is no adjustment or carry forward of losses.

How do cryptocurrency taxes work?

According to the government guidelines: No deduction in respect of any expenditure or allowance shall be allowed while computing such income except the cost of acquisition.

Let’s understand it with an example:

Suppose you bought a bitcoin of 25,000 INR i.e called the cost of acquisition or the cost of buying & you sold it for 30,000 INR so the profit is 5,000 INR. so the income tax on cryptocurrency by the government will be only on the cost of acquisition is on the profit you get i.e. on 5,000 INR.

Cryptocurrency taxes if you Buy, Sell or Transfer cryptocurrency

If you have gone through Income tax guidelines on cryptocurrency this year then you must be knowing that TDS will be imposed on payments for the transfer of crypto assets at a rate of 1% for translation over a certain threshold.

For example: If you or your relative gift cryptocurrency to each other then in this case gifting any worth of cryptocurrency is taxable. & it should be treated as income.

The same goes when you purchase any product or service from cryptocurrency, it should be counted as a sale of that cryptocurrency & you have to pay the tax for that sale.

Now, what is this 1% TDS in this whole picture?

Suppose you sold 1,00,000 INR worth Bitcoin to person A now the person has to pay 1,00,000 INR to you. So person A will deduct 1% TAX on 1,00,000 INR and person A will pay you 99,000 INR to you. Now this 1% TAX is not additional, it has been adjusted on the same amount when you get profit or also can ask for the “return” from the government in case of a loss when you file your Income Tax.

Note: This is only applicable when the transaction amount is more than 50,000 INR Tentitavily.

Good News!

“By 2023, A Blockchain-Based RBI-Backed Central Bank Digital Currency (CBDC) will be Introduced.”

Cryptocurrency taxes when you mine cryptocurrency

If you earn cryptocurrency by mining it or through any mode of payment on goods and services then you owe the government only Regular Income tax on cryptocurrency according to the entire fair tax market value of the cryptocurrency on the day you received it.

But if you sell it or spent it later at a profit when the value of cryptocurrency increases then you owe the government the taxes on the profit you gain based on how long you held it.

How to file your cryptocurrency taxes?

Cryptocurrency taxes 2022 is not a big task to accomplish but you definitely have to take care of a few things like:

  1. Keep a record of all the transactions including your selling, buying, or holding of cryptocurrency along with the receipt of all the transactions.
  2. Fill out the proper cryptocurrency taxes forms: Once you have recorded the crypt transaction you have to fill out a certain tax form depending on your usage of cryptocurrency like:
  •  Form 8949: this form confirms every cryptocurrency sale or purchase as an investment. This includes all the dates you sell, exchange, or bought the coin, & the no. of coins you own.
  • Schedule D: This form reflects the total capital gain, losses from all the investments including cryptocurrency.
  • Schedule C: This holds the record of cryptocurrencies you gain from mining that whether you disclose it as a business or hobby. In the case of running a crypto mining business, you may owe a self-employment tax if your income exceeds the expenses of the year.
  • Schedule 1: In case you report crypto mining as a hobby then you are not liable for paying self employable tax but you are limited on what you can deduct as an expense. 
  1. File your tax: If you keep a record in the software that tracks your cryptocurrency activities then you can simply connect with them with the online tax software of your choice to file your overall ta returns and profits in one go.

Tips to minimize your income tax on cryptocurrency

Where there is a will there is the way: This quote definitely gives you a clue that doesn’t be sad if you have to pay 30% tax to the government because you still have a lot to save with these tips:

  1. Hold your cryptocurrency for the long term: That means you don’t have to pay tax on the cryptocurrency which you are holding or not booking as a profit to the government. You can hold your good cryptocurrency for the long term.
  2. Stake your cryptocurrency to earn passive income: there are multiple cryptocurrency platforms (unrealized platforms) where you can stake your cryptocurrency and generate a passive income without paying a tax.
  3. Switch to cryptocurrency tax-free countries: Big traders who believe in cryptocurrency can switch to tax-free cryptocurrency for tax-free trading.
  4. Book profits before 1 April 2022: The best idea is to file a profit before 1 April & save yourself from any kind of cryptocurrency taxes 2022 by showing this profit as under capital gain or any other income.
  5. Decentralized exchanges(DEXs): many people will use decentralized exchanges where you don’t need KYC for buying or selling cryptocurrency thus saving taxes.
  6. Split the profits in different years: Suppose on your profit of 20,000 INR you book a profit of 10,000 this year & book another profit on 10,000 INR in next year if in case you get a loss of 5,000 INR on that year you only need to pay the tax on balancing the profit and loss.

Invest in cryptocurrency indirectly: if you have the knowledge of foreign markets then in place of directly investing in the cryptocurrency you can invest in ETFs of companies to pay fewer taxes.