Taxation of gains on crypto currencies

CA Mahesh Bansal (Practising CA with specialisation in banking related consultancy)   (1051 Points)

03 December 2021  

Millions of Indians have invested in crypto currencies and have made huge gains in last couple of years. Now, it is the time to file their income tax returns. But they are not sure how to treat the income from cryptocurrency trading in their ITR. Nothing is specifically prescribed in Income Tax laws of land. Even most of the Tax consultants are not well aware of the taxation aspects on this subject. We have been receiving floods of queries daily on various aspects of taxation of crypto currency profits.

We have tried to compile answers to some of the typical queries we receive from crypto currency investors:

1. Whether gains made by investing in digital currencies are taxable?
Ans- Yes

2. If taxable, under which head of income, profits from crypto currencies are to be shown?
Ans- It depends on nature of your transactions in cryptos. If conducted as a regular business, show it as Income from Business. If held as investments, show under Capital Gains.

3. When tax becomes payable on profits made from crypto currencies?
Ans- In the same manner you pay taxes on all your income. Even Advance Tax rules are applicable.

4. If I have received payment in digital currency for services rendered by me and I have not yet sold the same, do I still need to pay taxes?
Ans- Yes

5. What are the deductions (cost) available against my gains on crypto asset ?
Ans- It depends on under which head you are showing your income from digital currency. If shown as business, all expenses pertaining to this business are deductible. If shown as capital gains, cost of acquisition and improvement are deductible.

6. Gains from crypto investing is long term or short term capital gains?
Ans- If held for more than 3 years, it is LTCG else STCG.

7. Whether benefit of indexation available on crypto assets for computing LTCG?

8. Whether deduction available from capital gains?
Ans-Yes, as per extant rules.

For any more question on taxation of gains on crypto currencies, feel free to reach us at ca.mahesh1985 @ or at 9716263569
CA Mahesh Bansal