Bitcoin Hits a Record High Amid Market Optimism: What This Means for Crypto Investors in India

Bitcoin Hits a Record High Amid Market Optimism: What This Means for Crypto Investors in India

Bitcoin has recently shattered expectations, hitting a record $89,500 after Donald Trump’s return to the White House. The biggest crypto asset gained an impressive 30% over the past week as the president-elect pledged to reduce regulatory pressures on the crypto industry. This rally isn’t limited to Bitcoin; other popular digital currencies like Dogecoin, Cardano, Ether, and Shiba Inu have also soared, with some shooting up by as much as 150% in just a week.

So, if you’re considering booking profits, remember that taxes on virtual digital assets (VDAs) in India are not as straightforward as those on mutual funds or stocks. Here’s what you need to know:

1. Flat Tax Rate, No Matter Your Tax Bracket

The 2022-23 Budget brought in a flat 30% tax on profits from VDAs, regardless of your income tax slab. Add to that a 1% TDS (tax deducted at source) on each transfer. Unlike with stocks, you can’t offset losses in one crypto against gains in another. For instance, if you sell one Bitcoin at a gain but another at a loss, you still owe 30% tax on the profit from the first Bitcoin.

Example: Suppose you made a profit of INR 1 lakh on a Bitcoin trade but lost INR 50,000 on an Ethereum trade. With stocks, you could balance one against the other, but with crypto, you’d still pay 30% on that 1 lakh.

2. FIFO Method for Tax Calculations

For crypto trades, the First-In-First-Out (FIFO) method applies, similar to how stock gains are calculated in India. This means the oldest assets bought are considered sold first when calculating gains.

Example: Imagine you bought one Ethereum in January 2024 and two more in November. If you sell two on November 12, FIFO treats that January Ethereum and one November Ethereum as the sold assets.

3. Taxation on Airdrops and NFTs

Free tokens? Lucky you! But in India, airdropped tokens are taxed too. The fair market value of these tokens at receipt time is the taxable base. NFTs also face a flat 30% tax, with only the purchase cost deductible.

Example: You get an airdrop of tokens valued at INR 10,000. That’s 30% tax due right there, and if you later sell or trade them at a higher price, you’ll owe another 30% on the gains.

4. Declare Everything—Even International Wallets

Crypto tax compliance is no joke. Disclose all wallets—centralized, decentralized (DEFI), and international—in your income tax filing. Make sure the TDS collected by exchanges is accurately reflected in your Form 26.

Crypto tax laws in India are evolving, but as of now, there’s no allowance to carry forward losses year-over-year. Consulting a chartered accountant or using a tax portal is highly recommended to stay compliant and make your crypto trading as tax-efficient as possible.