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Cryptocurrency has quickly emerged as a preferred investment choice globally, and India is no exception. Despite its prevalence, understanding how cryptocurrency transactions are taxed remains a complex and often confusing aspect for many investors. This blog aims to demystify the taxation process for cryptocurrency transactions in India, empowering investors with the clarity needed to confidently navigate this landscape and make informed decisions. In India, not all cryptocurrency transactions are taxable. Only specific events trigger taxes, such as selling cryptocurrencies for fiat currency, exchanging one cryptocurrency for another, and using cryptocurrencies to purchase goods or services. Investors need to understand these taxable events to avoid potential issues with tax authorities. This information is crucial for both new and experienced investors navigating the complex world of cryptocurrency taxes. The gain arising from the sale of cryptocurrency is classified as either short-term or long-term capital gains, based on the holding period. If held for less than 36 months, it's short-term and taxed as per the individual's income tax slab rates. For holdings over 36 months, it's long-term and taxed at 20% with indexation benefits. Indian taxpayers are required to report income earned from cryptocurrencies under the Income from Other Sources or Capital Gains depending on the type of earnings, on their annual tax returns. Failure to do so can result in penalties and interest on the unpaid taxes. To stay out of trouble with the taxman, it's super important for investors to be honest about their crypto transactions. Starting July 1, 2022, a 1% Tax Deducted at Source (TDS) will be applicable on payments exceeding ₹10,000 in a financial year toward virtual digital assets (read cryptocurrencies). This might be a step toward legitimizing crypto transactions, but it also means you, as an investor, need to keep an eye on those TDS credits when you're filing your returns.
