In India, the taxation of cryptocurrency is governed by rules introduced in the Union Budget 2022, which came into effect from April 1, 2022. Here’s an overview of cryptocurrency taxation, tax rates, and required documentation in India:

1. Cryptocurrency Taxation Rules in India:

The government considers cryptocurrencies, including Bitcoin, Ethereum, and other digital assets, as Virtual Digital Assets (VDAs). As per the guidelines issued:

• Income from Transfer of Cryptocurrencies: A flat 30% tax is levied on any income (profit) earned from the transfer or sale of cryptocurrencies, regardless of whether they are held for the long term or short term. There are no exemptions, deductions, or allowances allowed except for the cost of acquisition.
• Losses Cannot Be Set Off: Losses from cryptocurrency trades cannot be set off against any other income, nor can they be carried forward to subsequent financial years.
• No Deduction for Other Expenses: You can only deduct the cost of acquisition (i.e., the price at which you bought the cryptocurrency). Expenses like transaction fees, trading platform fees, and blockchain fees are not deductible.
• Gifting Cryptocurrency: If you receive cryptocurrency as a gift, it will be taxed in your hands under the head of “Income from Other Sources,” subject to certain exceptions like gifts from relatives.

2. Cryptocurrency Tax Rate in India:

• The tax rate for profits from cryptocurrency trading is a flat 30%.
• This rate is applicable regardless of your total income slab.
• There is also an additional surcharge and cess on the tax.

3. TDS on Sale or Purchase of Cryptocurrency in India:

• As of July 1, 2022, a 1% Tax Deducted at Source (TDS) is applicable on the transfer of cryptocurrencies.
• TDS applies on transactions exceeding ₹50,000 (for individuals subject to tax audit) or ₹10,000 for other taxpayers within the same financial year.
• The seller or exchange deducts TDS before transferring the proceeds of the sale.
• If you trade on exchanges that act as an intermediary, they will deduct the TDS and file the returns.

4. Documents and Records Required for Trading in Cryptocurrency in India:

To ensure proper taxation compliance, you need to maintain the following records:

• Transaction History: Keep detailed records of all your cryptocurrency transactions, including purchase, sale, and transfer. Most exchanges provide a detailed history of trades.
• Proof of Acquisition: Maintain proof of the cost of acquiring the cryptocurrency, such as invoices, purchase confirmations, and screenshots from the exchange.
• Exchange Statements: Statements or records from the cryptocurrency exchange showing trades, transaction fees, and withdrawals.
• Bank Statements: For transactions made through bank accounts, it’s important to maintain copies of bank statements showing deposits/withdrawals related to cryptocurrency trades.
• Form 26AS: Regularly review your Form 26AS (TDS statements) for TDS deducted on cryptocurrency sales.
• Wallet Information: Maintain a record of cryptocurrency wallets if you use private wallets for transactions outside of exchanges.

Summary of Key Cryptocurrency Taxation Points:

• Flat 30% tax on profits from cryptocurrency transactions.
• No set-off of losses from other income.
• TDS of 1% on transfers of cryptocurrency for transactions above ₹10,000/₹50,000.
• Necessary documentation includes transaction history, proof of acquisition, exchange statements, and bank records.

These rules apply to individuals, businesses, and entities dealing in cryptocurrencies. It is recommended to consult with a tax professional to ensure compliance and optimize tax planning.