Topic: Tax on Crypto Trading as per New Tax Law - Explained (Read 413 times)

I think you will always need a CA to calculate your taxes it will always be a value addition and you will be earning much more than what you are spending on it. Even if Government simplify the procedure a CA could still help you find ways to save tax.

No, so far no such thread has been posted. But if you have any specific query please feel free to post it, me or webtricks will love to answer them.

Is this thread posted yet?

@webtricks
You have explained well, but now it is more worse for buyers who need CA to calculate all these things. I hope the Govt will make it easier to pay tax than hiting a CA for small tax payers.
Every transaction means its more headache for every person.

They might not but India follows the system of self-assessment tax. While filing the return, it's you who will mention what your incomes are during the year, how much you made from the trades, etc. Government may or may not be able to catch you, that's a separate thing. I was only telling you what is correct as per the Act.

For a simple analogy, first you asked me - is it legal to kill someone? To which I simply replied - No! It is crime as per the law. Now, you are asking, what if I hide the body smartly so no one would be able to catch me? They might not able to catch you killing but that doesn't make the killing legal. Hope this clears the above.

@webtricks Regarding Q2, I understand that every transfer is a taxable event. But how will they ascertain that I have realised profit in the exchange of BTC to USDT.? I acquired BTC using INR and then exchanged it for USDT. So unless I convert them back to BTC or INR which shows an increase in the original holding, how can they ascertain that I booked profit in those trades ?

1. You will be taxed on Rs. 1.1 lakh in FY 2023-24. Only cost of acquisition is allowed to be deducted and your cost of acquisition will remain Rs. 1 lakh forever, no benefit of indexation will be provided.

2. Yes. This will still be taxable. Since, the tax is on 'transfer' which includes exchange, selling BTC for USDT will also be considered as transfer as you are exchanging one crypto for the other. Liquidating USDT doesn't matter. Your one trade is over which is a separate taxable event. When you will sell USDT, it will be second taxable event and separate tax calculation on it will be required if there is a change in its value.

3. INR equivalent of 0.03 BTC will be taxed as on the date of trade. However, the formula to calculate INR value is not yet published. Usually, it is not a part of Section but announced separately as Rules or Notifications. So, we have to wait for more clarity on this one from the government.

@webtricks @teosanru I got few questions.

1. What if I buy BTC for 1 lakh at the start of a financial year let's say 1 April 2022 but didn't sell it in the financial year and the price was 2 lakhs on 31st March 2023. But I sold it in the next financial year for 2.1 lakhs on 1 April 2023 or later. Will I be taxed for 1.1 lakh or 0.1 lakh for the year 2023-24 ?

2. Let's say I bought BTC when it dumped using INR and when the price pumped I exchanged BTC to USDT. I will then never exchange my USDT to btc or INR. Should I pay tax for this? If so why.

3. How to calculate the profits in BTC pairs. If I trade in BTC pairs and make a realised profit of 0.1 BTC should I pay 0.03 BTC as Tax? Or equivalent inr value at the time of trade or filing tax?

Thanks in advance.

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I am not very active in the forum nowadays, so quote me when you answer this so that I get notified. Thanks

To an extent, it clearly indicates that the government is discouraging cryptocurrency trading. If you incur loss you still need to pay 30% tax because you invested the amount in crypto. This will encourage illegal trading and will come as a shock to the government as they will be helpless in stoping such activities.

Like I said earlier, there was a typo in the bill and government corrected the same in the final draft of the bill but guess what, the correction is entirely opposite to what I was expecting. Instead of including the term 'other' in the first clause, government has removed it from the clause (b) as well. Here's the copy of the final bill amendments:



So, the bottom line is we can no longer set-off losses from the profits. Government will only consider absolute profits for the tax purposes which is highly inappropriate and as a member of Indian Crypto Community, I will try to oppose it. But as of now, this is the legal position from the government.

Thank you but webtricks wrote:

No you can't, and this is really the biggest problem with the law. Your profit would be treated as a standalone profit and your losses won't be considered as a loss while filing your tax return. This means even if you incur a loss after you have made a profit, you'll still have to pay up the tax on that profit that you have made.

"no deduction in respect of any expenditure (other than cost of acquisition) or allowance or set off of any loss shall be allowed to the assessee under any provision of this Act in computing the income referred to in clause (a) of sub-section (1); "

This line makes it quite clear that no set off will be allowed against any gain that you have made in cryptos.

@webtricks. can one off-set losses if they invested in a coin that went all the way to zero or rug-pulled?

This was what i was wondering about, I also hold some btc in my cold wallet. Thank you

F&O trading in crypto is same as the normal trading for profit calculation. The realized gains i.e. the net of the profit and loss from all of your closed positions shall be taxable @ 30%.
However, if you send the whole amount to the Unocoin and convert it to INR, simply pay tax on the INR amount withdrawn to the bank.
For Options, you can further take the deduction of amount paid as premium as it will be considered as your Cost of Acquisition.

Thanks for making this, what about futures and options traders? can you please shed some light on those.

For example, I trade futures on binance and then transfer the USDT profit to some exchange, preferably unocoin and then sell it for INR. How does taxation work in that case?

Preface: To keep the thread short and readable, I have decided to cover one issue in each thread. This thread specifically covers the taxation on profits earned by crypto traders and investors as per the bill announced in the recent budget. I will cover the taxation on other incomes in the future threads.

Government has finally announced the specific section for the taxation of cryptocurrencies. However, the budget speech was bit ambiguous especially about no loss set-off rule so it took me a little digging and discussion with other professionals to finally understand the whole new taxation proposal (remember it's still a proposal, bill is not yet passed in the Parliament). In this thread, I will be discussing the new proposed section i.e. Section 115BBH and how will it effect the profits earned by traders and investors.

If I summarize the section in a single line then 'every realized gain made by a trader is taxable @30%'. However, it raises several questions so let's answer them one by one:

Question 1: What is a realized gain?
Answer: A financial year runs from April 1st to March 31st. If you buy BTC on 1st October for ₹20 lakh and sell it on 1st January for ₹30 lakh then this is called a realized gain and you have to pay tax on the profit of ₹10 lakh. However, if you don't sell the BTC and its value increases to ₹35 lakh on 31st March then ₹15 lakh is your unrealized gain and no tax is to be paid.

Question 2: How to calculate my gains?
Answer: Every investment is a separate taxable event. To calculate profits, you have to see every crypto investment of yours in an isolation. Profit is the difference between the price at which an investment is sold and the price at which it was bought (i.e. cost of acquisition). Calculation gain on each of your investment sold during the year, club all the gains and pay tax on the aggregate profit.


Question 3: Do I have to pay tax only when I realized the money in INR i.e. withdraw the money to the bank?
Answer: No, you have to pay tax every time you make a realized gain, there is no condition that the amount has to be withdrawn to the bank. Section 115BBH specifically includes this statment - 'income from the transfer of any virtual digital asset'. Here's an excerpt from the definition of transfer as per Section 2(47):


The word 'exchange' covers all transactions related to converting one cryptocurrency to another. So, if you purchase ETH for 2000 USDT and then sell it for 2300 USDT, you still have to pay tax on 300 USDT even when you haven't realized USDT to INR. Keep this in consideration when you are doing trading on the exchanges like WazirX, every sale/purchase transaction will be considered for taxation even when you haven't withdrawn any profit to the bank.


Question 4: Am I allowed to set-off loss made on one trade with the profit made on another crypto trade?
Answer: This is probably the most asked question by the traders since the proposed bill is out and to be honest government itself made it very unclear in the bill. I will be discussing this as per my understanding and I maybe wrong on this one. Let us first see the sub-section (2) of Section 115BBH where it is announced:


The clause (a) made it very clear that nothing is allowed to be deducted against the profit earned from crypto trade except cost of acquisition i.e. the buy price. However, clause (b) contradicts the above clause. It states that any loss from the crypto trade cannot be set-off against any income under any other provision of the act. The term 'other' here signifies that loss cannot be set-off against any income other than the crypto income which means that the loss from the one trade can be set-off from the profit made on the other crypto trade.

My take: Investors will be allowed to set-off losses from the profits and they will only have to pay tax on the net profits earned during the year. The clause (a) has a typo and most probably will be rectified and the term 'other' will be included in the first clause as well when the act will be enacted in March 2022.


If you have any question related to taxation on crypto trading and investment, feel free to ask in the thread.