You are currently viewing How to Save Tax on Sale of Bitcoin and Cryptos

How to Save Tax on Sale of Bitcoin and Cryptos


How to Save Tax on Sale of Bitcoin and Cryptos in 2022?

The most famous and known cryptocurrency, for which blockchain technology was made, is referred to by the name Bitcoin. Alike to the currencies like say US dollar, a cryptocurrency is and can be used as a means of exchange. But, cryptocurrencies are virtual and digital, and they utilise encryption to the making of new units of cash or financial value and to confirm the flow of cash.

Cryptocurrency, sometimes also referred to as “crypto,” is a category of virtual or digital assets that may be bought, sold, or traded securely and was developed using cryptographic methods. Cryptocurrencies, in contrast to traditional fiat currencies governed by national governments, may be used outside of the control of a central bank.

The levy of Flat Tax Rate of 30% on the Sales of Virtual Digital Asset

The term “virtual digital asset” was established in the Budget for the FY of 2022, and it includes all cryptocurrencies, including Bitcoin, Etherium, and others, as well as Non-Fungible Tokens which are referred to as NFT’s.

Gains from all Virtual Digital Assets are subject to tax at fixed rate of 30%, hence gains from cryptocurrencies like Bitcoin, Etherium, and also NFT’s are also subject to this rate of flat tax rate. Additionally, income would be taxed under the heading Income from Other Sources and not as Capital Gains.

The sale of any cryptocurrency may result in losses also. However, such losses may not be offset by profits from any other form of income, including business revenue, capital gains, etc.

Additionally, it would not be possible to offset a loss from the sale of one cryptocurrency with a gain from the selling of another cryptocurrency.Even carrying over crypto losses to the following year would not be permitted.

For instance, Mr. X is trading in bitcoins and is also making a profit of Rs. 10 lakhsin the month of October, but heloses Rs. 5 lakhs when hesells another bitcoin deal in the month of November. As a result, he only actually made Rs. 5lakhs.

However, his income will be counted as Rs. 10lakhs rather than Rs. 5lakhs for income tax purposes, and 30% Tax will be applied to that amount i.e., Rs. 10 lakhs. The tax owed in this instance would be 30% of 10 Lakhs, or Rs. 3 Lakhs. To reiterate, a loss on the sale of one cryptocurrency cannot even be offset by a gain on the sale of another.

Please take note that losses incurred in cryptocurrency cannot be offset by profits or other income. But profits from cryptocurrency can offset losses from other sources of income. Imagine, for instance, that Mr. X lose Rs. 2 lakhsin his business and earn Rs. 5 lakhs through cryptocurrency exchanges. His taxable income in this situation would only be Rs. 3 Lakhs, and a 30% tax would be applied to that amount.

Reiterating, losses from the sale of cryptocurrencies cannot be offset, but losses from any other source of income may be offset with profits from cryptocurrencies.

Levy of TDS @ 1% on NFTs, Bitcoins and Other Crypto Transactions

From April 1, 2022, onward, 1% TDS, or tax deducted at source, will also be applied to the sale of any virtual digital assets, such as NFTs and cryptocurrencies. It would be necessary to deduct this 1% TDS under Section 194S from the Sale Price rather than the Capital Gain.

The individual would be able to claim credit for this 1% TDS that has already been taken out when submitting the ITR.

What is the time of levying tax on cryptocurrency or bitcoin transactions?

The aforementioned taxes would be assessed when an asset was sold rather than when money was taken or is withdrawn out of a bank account.

As a result, tax would still need to be paid in the year that the cryptocurrency was sold rather than the year that the money was withdrawn to the bank account if a person sold their cryptocurrency but did not withdraw the proceeds to their bank account.

The newest and most popular trend in the global financial sector is investing in cryptocurrencies. These digital currencies are not governed by any governments or other centralised financial organisations since they are decentralised. However, the revenue obtained from its sale, exchange, or transfer is still subject to taxation by the government.

GST on Bitcoin

The Indian government is debating adding GST on cryptocurrency transactions. The idea of taxing cryptocurrency transactions with GST at 28% has been discussed for a number of years as of today. This would be in addition to the existing 30% Tax.

However, the government has not yet imposed a 28% GST on cryptocurrency transactions.

Tips to saving tax on sale of bitcoin

The Government of India has announced taxes rates related revenues from digital currency in the Union Budget of 2022, as discussed before.

For earnings from virtual digital assets, a 30% tax rate and a 1% TDS deduction would apply as discussed above.

However, did you know that there are a number of methods you can use to effectively reduce the amount of tax you have to pay on cryptocurrency profit?

How are crypto taxes going to be reduced?

Keep your cryptocurrency for the long haul.

In the case of cryptocurrencies, you should always aim for a long-term capital gain rather than a quick one. You can reduce your tax liability as a result.

When you sell your possessions after owning them for at least a year, the gain is referred to as a long-term capital gain. On the other hand, if you sell your investments in less than a year, you will have made a short-term financial gain.

According to experts, long-term capital gain taxation on crypto assets will be substantially lower than short-term capital gain taxation. According to some analysts, long-term cryptocurrency gains may allow you to pay 10% less in cryptocurrency taxes.

After a year, sell your bitcoin if you want to. You will save more money on taxes because to the low tax rate.

Get a sideways look at cryptocurrencies

Getting indirect exposure to cryptocurrencies is one of the best ways to lower your crypto taxes. Circumstantially, certain recently launched portfolios by different global investment platforms allow Indian crypto investors to taken exposure to a particular digital currency without buying it or directly investing in it.

Through such indirect exposure, you might enjoy cheap taxation as a cryptocurrency investor.

Sell during a year with a low income

The tax rate on your cryptocurrency sales proceeds is based on your taxable income. Selling your crypto assets during a low-income year allows you to reduce your crypto taxes since a lower income guarantees a lower income tax rate for that fiscal year.

Waiting until a low-income earned year also has the benefit of allowing the tax rate on crypto assets to be computed using long-term capital gain rates after a 12-month period which can be beneficial. As a result, you benefit from tax savings twice, when compared otherwise.

Maintain your winnings in stable coins

You may avoid paying taxes and safeguard your investment over time by investing your bitcoin sales revenues in stable coins.Stable coins are less volatile than other cryptocurrencies like Bitcoin since their value is tied to another coin, product, or financial instrument. You are less likely to suffer a long-term capital loss by investing in them as a consequence.

One US Dollar is equivalent to one USD Coin, for understanding. Therefore, investing your cryptocurrency in such a stable coin might be a smart move given the rise of the US Dollar.

These are a few ways to reduce your cryptocurrency taxes. However, seeking advice from a tax expert is highly recommended before implementing any of these suggestions or techniques.

Please keep in mind that if you received any cryptocurrency earnings on or before March 31, 2022, the tax rate announced in this year’s budget will not apply to you.

With the right approach, you may maximise your tax savings while still complying with income tax regulations.

Although investing in cryptocurrency is tough, it may also be profitable if done appropriately and as a part of a balanced and a good portfolio. If you want to have direct exposure to the demand for digital currency, investing in cryptocurrency is a good idea.If you want to enhance your portfolio’s exposure to cryptocurrencies and have a high-risk tolerance, you might consider investing in bitcoin, the most valuable cryptocurrency by market capitalization.

Any newbie can get started with bitcoin. As Bitcoin is accepted by all exchanges, you will be aware of what you are buying. Simply put, bitcoin is a type of electronic money. It has a competitive edge as you can use it to swap value and money.

Starting an investment would always be an extra source of income and security one can set during their professional period. In my opinion, every youngster should do a trial and error for investing in crypto currency as this would help you learn a lot more about the technical development in this area.





Kanakkupillai is your reliable partner for every step of your business journey in India. We offer reasonable and expert assistance to ensure legal compliance, covering business registration, tax compliance, accounting and bookkeeping, and intellectual property protection. Let us help you navigate the complex legal and regulatory requirements so you can focus on growing your business. Contact us today to learn more.