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By Edul Patel
In the ever-evolving landscape of cryptocurrencies, 2022 marked a significant milestone for India. The Union Budget introduced a taxation system for virtual digital assets. For many, this development might seem like a hurdle to the free-spirited world of digital assets. However, there's another perspective to consider—the one that views taxes not merely as an obligation but as a crucial step in legitimizing and normalizing the buy and sell of cryptos in India.
How are Cryptocurrencies Taxed in India?
All profits from cryptocurrency purchases, sales, and transactions are subject to a flat 30% capital gains tax under Section 115BBH, with no provisions for reduced rates or deductions. Additionally, a 1% Tax Deducted at Source (TDS) fee is levied on cryptocurrency asset transfers. In the case of transactions surpassing Rs 50,000 within a single financial year, the TDS amount deducted will be recorded in the 26 AS statement, and individuals can claim it back when filing their income tax returns.
How to Save Crypto Tax
Avoiding tax liabilities is not a prudent strategy; instead, it is advisable to concentrate on methods to minimize taxes without incurring unnecessary financial burdens.
Focus on long-term investing
When it comes to cryptocurrencies, it is suggested to prioritize long-term capital gains over quick profits to optimize your tax liability. This strategic approach serves a dual purpose: not only does it align with potential market trends, but it also allows you to efficiently manage your tax obligations.
When you actively participate in short-term trading activities, it results in short-term capital gains. These short-term gains, however, come with a tax implication in the form of higher tax rates. By holding onto your cryptocurrency investments for a more extended period, often exceeding a year or more, you may become eligible for the benefits of long-term capital gains tax rates.
Explore Stablecoins
Stablecoins offer a distinct advantage due to their reduced volatility compared to cryptocurrencies like Bitcoin and Ethereum, primarily because their values are pegged to assets such as fiat currencies, exchange-traded commodities, or other cryptocurrencies.
The tax-saving maneuver here involves converting your gains into stablecoins. This conversion can be executed on various cryptocurrency investment platforms and exchanges that support stablecoins. By making this shift, you effectively shield your gains from the price fluctuations commonly associated with more volatile cryptocurrencies.
Select right crypto platform
Ensuring the legitimacy of your chosen cryptocurrency investment platform or exchange is paramount for safeguarding your funds. A vital aspect of this verification process is confirming that the platform adheres to a mandatory Know Your Customer (KYC) procedure. KYC not only ensures compliance with regulatory standards but also enhances security by validating user identities, thereby providing a layer of protection against fraudulent activities and unauthorized access to your assets.
Conclusion
The journey to save on crypto taxes in India requires a blend of financial literacy, strategic planning, and responsible investing. By adhering to these principles, investors can harness the full potential of cryptocurrencies while ensuring they meet their tax obligations. In this ever-evolving landscape, staying informed and proactive is key to securing a prosperous financial future in the crypto era.
Author Bio
Edul is a Co-Founder and CEO of Mudrex and comes with over a decade of experience in finance, entrepreneurship and building tech-driven applications. Prior to Mudrex, Edul was the Co-Founder of Niffler (Acquired by Tapzo) and served as Product Head of Tapzo (Acquired by Amazon). Edul earned a Bachelor's Degree in Technology from IIT Bombay.
Disclaimer
The views and opinions expressed in this article are solely those of the authors and do not reflect the views of Bitcoin Insider. Every investment and trading move involves risk - this is especially true for cryptocurrencies given their volatility. We strongly advise our readers to conduct their own research when making a decision.