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Why 30%? How Is Crypto Taxed Differently Than Stocks Or Real Estate?
Why Does The Indian Government Tax Crypto This Way, And How Is It Different From Traditional Assets Like Stocks Or Real Estate?
The Government Treats Crypto Under A Special Category Called “Virtual Digital Assets” (Vdas)- And Unlike Stocks Or Real Estate, There’s No Distinction Between Short-Term Or Long-Term Holding Periods.
In Stocks, For Instance, If You Hold Equity For Over A Year, You Pay Just 10% On Gains Above ₹1 Lakh. Real Estate Has Indexation Benefits. But Crypto? It’s Flat 30% On Profits, No Matter How Long You Held It.
This Policy Came Into Effect In April 2022. The Rationale Was To Treat Crypto Trading Like Speculative Income, Similar To Gambling Or Lottery Winnings, Which Also Face Flat Tax Rates. It’s The Government’s Way Of Signaling Caution.
How Does The 1% Tds Work- Even On Loss-Making Trades?
How It Works, And Why It’s Applicable Even If The Trade Is In The Loss?
The 1% Tds- Or Tax Deducted At Source- Is Collected On Every Crypto Transaction, Not Just The Profitable Ones. So If You Sell Bitcoin Worth ₹10,000- Even At A Loss- The Platform Deducts ₹100 As Tds And Reports It To The Income Tax Department.
It’s Not A Tax On Profit- It’s A Compliance Tool. The Idea Is To Track Every Single Crypto Transaction. The Government Uses This To Monitor Trading Activity And Match It With Your Itr.
Now, The Good News Is- You Can Claim This Tds As A C redit While Filing Taxes. But The Bad News? It Hurts Liquidity For High-Frequency Traders Who Make Dozens Of Trades A Day.
What Are The Challenges In Filing Crypto Taxes?
What Are The Biggest Challenges That Crypto Traders In India Face When It Comes To Tax Filing Under This Regime?
There Are Several. First, Record-Keeping. Many Traders Use Multiple Exchanges, And Sometimes Even P2P Or Dexs. Tracking Purchase Price, Sale Value, And Profit/Loss For Each Trade Is A Nightmare Without Proper Tools.
Second, Lack Of Offset Provisions. In Traditional Investments, If You Make A Profit On One Stock But A Loss On Another, You Can Offset The Two. But With Crypto, Losses Can’t Be Adjusted Against Gains, Nor Can They Be Carried Forward.
Third, Tds Reconciliation. Traders Must Manually Reconcile The 1% Deducted From Each Trade Across Platforms And Make Sure It Reflects In Their Form 26as.
And Finally- Grey Areas. What About Staking Rewards? Nfts? Airdrops? There’s Still Very Little Clarity On How These Should Be Taxed.
Can Crypto Investors Reduce Their Tax Liability?
Is There Any Way They Can Reduce Tax Liability, Like By Using Losses From Other Trades Or Claiming Deductions?
Under The Current Laws, Deductions Are Extremely Limited.
- No Deduction Is Allowed For Mining Costs, Internet Expenses, Or Even Gas Fees.
- Losses From Crypto Can’t Be Offset Even Against Other Crypto Gains.
- You Also Can’t Claim Deductions Under Section 80c Or Similar Sections.
So The Only Real Way To Optimize Is:
- Track Your Tds And Claim It During Itr Filing.
- Book Losses In Other Asset Classes Like Stocks, Which Can Be Offset.
Consider Holding Instead Of Frequent Trading, Especially If You’re Incurring Cumulative Tds Deductions.
What Happens If Someone Doesn’t Report Crypto?
What Happens If Someone Doesn’t Report Their Crypto Activity While Filing Itr? Are There Penalties Or It Department Red Flags?
With The Tds System In Place, The It Department Already Knows You Made Crypto Transactions. It Appears In Your Form 26as.
If You Fail To Declare These, You May Get A Notice From The Income Tax Department Under Section 139(9) Or Worse, Face Penalties Up To 200% Of The Tax Due, Plus Interest.
Repeated Non-Compliance Can Also Be Treated As Willful Concealment, Which May Invite Prosecution Under Certain Sections.
So It’s Not Worth The Risk. It’s Always Safer To Declare Everything And Stay On The Right Side Of The Law.
Is This Tax Regime Sustainable?
The Current Tax Regime- 30% Flat Tax, 1% Tds, And 4% Cess- Is Sustainable? Or Do We Need A Reform To Support Innovation And Adoption?
The Tax Regime Is Discouraging Active Participation. High Taxes And Tds Are Pushing Traders To Offshore Exchanges Or Even The Informal Market.
If India Wants To Become A Web3 Leader, It Needs To Shift From Punishment To Policy, Like Offering Slab-Based Taxation, Allowing Loss Set-Off, Or Incentivizing Long-Term Holding.
That Said, These Are Still Early Days. The Government Is Watching The Space, And We Can Hope That As Adoption Grows, Policies Evolve To Be More Aligned With Innovation And Economic Growth.
Closing Remarks
Today’s discussion covered a lot of ground on crypto taxes in India. Ruchi, any final thoughts for our listeners?
The key takeaway is clear: compliance is non-negotiable. While the current tax regime may seem strict, staying informed, reporting accurately, and tracking your TDS can save you from penalties. The crypto market will continue evolving, and those who adapt wisely—by holding long-term, using proper record-keeping, and understanding the rules—will thrive, while those ignoring the system risk trouble.
Absolutely! To our listeners—whether you’re a casual trader, long-term hodler, or a crypto newbie—understanding taxation is crucial. Stay smart, stay compliant, and keep building in the Indian Web3 space.
