Have you invested in cryptocurrencies this year? You’ll have to pay tax if you don’t…

If you invested in cryptocurrencies in 2023-2024, you could have made some pretty substantial gains that year.

Most major cryptocurrencies have reported notable price increases over the past few months, with Bitcoin up around 108% over the past year and Ethereum up around 80% during that same period.

However, Bitcoin has recently begun to decline, dropping nearly 4% in the third week of June 2024.

Cryptocurrency transactions are subject to two types of taxes.

1. On transfer of crypto tokens, also known as Virtual Digital Assets (VDA) in tax parlance, investors will pay TDS (tax deducted at source) of 1 percent as per Section 115BBH of the Income Tax Act, 1961, which provides for tax on income from virtual digital assets.

2. If you make a profit from cryptocurrency trading, you are liable to pay a flat 30% tax on your profits. A 4% tax will be deducted in addition to the 30% tax. There is no capital gains tax or low interest tax on cryptocurrency trading.

Key cryptocurrency tax provisions taxpayers should be aware of:

1. The law also provides that gifts of virtual digital assets are taxable upon receipt by the recipient.

2. A flat fee of 30 percent will be charged regardless of how long you hold the crypto tokens.

3. This is not the first time that crypto income has been taxed. A 30% tax on crypto income came into effect on April 1, 2022, and a 1% withholding tax came into effect on July 1, 2022.

4. These provisions were introduced for the financial year 2022 under Section 115BBH of the Income Tax Act.

5. The latest budget announcements, including the interim budget 2024, have not introduced any changes to taxes on cryptocurrencies.

6. When calculating your income from cryptocurrency trading, you can deduct the acquisition costs but no other deductions are allowed.

7. There is no provision to offset losses incurred in cryptocurrency transactions against any income, even profits made in cryptocurrency.

These provisions have been introduced in the wake of the phenomenal rise in trading in virtual digital assets, Finance Minister Nirmala Sitharaman said while presenting the Budget in February 2022.