With more Indians investing in cryptocurrencies and overseas equities understanding the tax treatment of these assets has become crucial. Taxpayers earning earning profits from Bitcoin, Ethereum, US stocks, ETFs, or other foreign assets are required to disclose such income while filing their income tax returns (ITR) in the relevant financial year,
Failing to comply with the income tax regulations in India such as missing return deadlines, hiding income, or ignoring notices can attract steep penalties, heavy interest and potential prosecution. Hence, making accurate disclosure and tax calculation increasingly important during the filing season.
How are cryptocurrency gains taxed in India?
Profits from the sale of assets are taxed at a flat rate of 30% under India’s virtual digital asset (VDA) rules. A 4% cess is also applicable, irrespective of whether the income is treated as capital gains or business income.
Crypto income may be classified as business income (ITR-3) or capital gains (ITR-2), depending on whether you have invested in cryptocurrency, or trading in crypto as a business activity, according to ClearTax. However, gains from cryptocurrencies and other virtual digital assets must be disclosed separately under Schedule VDA in the relevant ITR form.
Additionally, there is a 1% tax deducted at source (TDS), which is levied on all crypto transactions. However, TDS does not apply in the following cases:
- Individuals and Hindu Undivided Families (HUFs): If their business turnover is up to ₹1 crore ( ₹50 lakh for specified professions), TDS is only applicable if total sales during the financial year exceed ₹50,000.
- Retail investors: If the total sales for the financial year does not exceed ₹10,000, then TDS is not applicable, according to ClearTax.
The following transactions undertaken using cryptocurrency are taxable under Indian income tax laws:
- Spending cryptocurrencies to buy goods or services.
- Exchanging cryptocurrencies for other cryptocurrencies
- Trading cryptocurrency using fiat currency such as INR
- Receiving cryptocurrency as payment for a service
- Receiving crypto assets as a gift from someone
- Mining cryptocurrency
- Receiving salary in form of crypto
- Staking crypto and earning stake benefits
- Receiving Airdrops
In case, the virtual digital assets are received through gift or airdrop, then it must be classified under Income from Other Sources.
Investors much also note that if you incur losses from , they cannot be set-off against any other income, not even income from other digital asset. This is different from stocks, where capital losses can generally be adjusted against capital gains subject to specified tax rules.
How are foreign stocks taxed in India?
Foreign stocks are taxed differently depending on the holding period and nature of gains. Investors also have to report and overseas income separately in their ITR forms. Here’s how profits from these stocks are taxed:
- Long-term gains: If the shares of a foreign company (not listed on Indian stock exchange) are held for more than 24 months before selling, it will be considered a long-term capital gain, which are taxed at a flat rate of 12.5% (plus applicable cess and surcharge). Also, the indexation benefit will not be available at the cost of the investment.
- Short-term gains: If the shares are held for less than 24 months before selling, then they are considered as short-term capital gains. In such a case, the sale of foreign shares will be added to total income and taxable at the individual’s slab rate.
What happens if you don’t report gains from foreign stocks or crypto?
If you fail to report your gains from foreign stocks or provide incorrect information, then you will be subjected to steep penalties. For every year that you do not disclose your foreign assets, you could face a penalty of ₹10 lakh, according to ClearTax.
Any non-reporting of foreign assets while filing the ITR is considered a willful evasion of tax, and the defaulter may have to face imprisonment of up to 7 years. Additionally, you may also lose the ability to claim relief under the double taxation avoidance agreement (DTAA) on such foreign income if disclosures are not made appropriately.
In the case of crypto, if you fail to report and pay taxes on your gains, the Income Tax Department can impose a penalty equal to 50% to 70% of the tax due, along with interest on the unpaid amount, according to Mudrex.
Taxpayers may also receive notices from the Income Tax Department for non-disclosure or incorrect reporting of foreign assets and income. In cases where authorities determine deliberate tax evasion or wilful concealment, legal proceedings may be initiated, which can lead to prosecution and imprisonment under applicable laws.
Since exchanges operating in India comply with the country’s tax laws, they may freeze or restrict accounts of users who fail to comply with tax regulations, meaning you may lose access to your funds, Mudrex said in a report.