If you have invested in cryptocurrencies in the financial year 2023-2024, then the chances are that you earned significant profits in the year gone by.
Most top crypto currencies reported noticeable jump in their prices in the past few months. Bitcoin rose nearly 108 percent in the past one year, while ether rose nearly 80 percent during this time.
Bitcoin, however, has started to drop recently, and lost nearly 4 percent in the third week of June 2024.
There are two forms of tax that are imposed on trading in crypto transactions.
1. When you transfer crypto tokens, also known as virtual digital assets (VDAs) in the taxation lingo, investors are meant to pay 1 percent TDS (tax deducted at source), as per Section 115BBH of Income Tax Act, 1961 that deals with tax on income from virtual digital assets.
2. When you make profits on crypto transaction, you are liable to pay 30 percent flat tax on the profit. There is a 4 percent less over and above 30 percent tax. There is no capital gain tax or tax on lower rate of interest levied on crypto transactions.
Key provisions relating to crypto tax that taxpayers must be aware of:
1. The law also states that any gift of virtual digital assets is liable to be taxed in the hands of the recipient.
2. Flat rate of 30 percent is imposed regardless of time duration for which crypto tokens are held.
3. This is not the first time that income earned on crypto assets will be taxed. 30 percent tax on crypto income came into effect on April 1, 2022 and 1 percent TDS came into force from July 1, 2022.
4. These provisions were introduced in FY 2022 under section 115BBH of Income Tax Act.
5. The latest Budget announcements including the interim budget of 2024 did not introduce any changes in tax on cryptocurrencies.
6. To compute income on crypto transaction, one can deduct cost of acquisition, while no other deduction is allowed.
7. There is no provision of setting off of losses incurred in crypto transaction against any income – even the gains earned on cryptocurrencies.
These provisions were introduced in the wake of phenomenal increase in transactions in virtual digital assets, Finance Minister Nirmala Sitharaman had stated while presenting the Budget in Feb 2022.
FAQs
Any gains accrued on your investment in cryptocurrencies are liable to 30 percent tax while no set off is allowed for losses incurred in crypto trading. Any gift of virtual digital assets is liable to be taxed in the hands of the recipient.
What rate is crypto taxed at? ›
Crypto taxes are a percentage of your gains. The rate depends on how long you owned the crypto and your income. Short-term capital gains tax rates range from 10% to 37%. Long-term rates can be as low as 0% or as high as 20%.
How much tax will I pay on crypto? ›
The total Capital Gains Tax you owe from trading crypto depends on how much you earn overall every year (i.e. your salary, or total self-employed income plus any other earnings). This number determines how much of your crypto profit is taxed at 10% or 20%. Our capital gains tax rates guide explains this in more detail.
Do you have to pay taxes on crypto investment? ›
The IRS treats cryptocurrencies as property for tax purposes, which means: You pay taxes on cryptocurrency if you sell or use your crypto in a transaction, and it is worth more than it was when you purchased it. This is because you trigger capital gains or losses if its market value has changed.
What is the new tax law for crypto in 2024? ›
2024 is the most important tax year for crypto investors to be reporting. For 2024, you still need to collect crypto data and properly report activity, including your cost basis. Starting in 2025, the IRS will have a “firehose of information” to verify whether past reporting was accurate, Gordon said.
How to avoid taxes on crypto? ›
There is no way to legally avoid taxes when cashing out cryptocurrency. However, strategies like tax-loss harvesting can help you reduce your tax bill legally. Converting crypto to fiat currency is subject to capital gains tax. However, simply moving cryptocurrency from one wallet to another is considered non-taxable.
Do you have to report crypto under $600? ›
You must report income, gain, or loss from all taxable transactions involving virtual currency on your Federal income tax return for the taxable year of the transaction, regardless of the amount or whether you receive a payee statement or information return.
How to calculate crypto taxes? ›
In the US, crypto tax rates vary based on your income and how long you hold the assets. Short-term gains are taxed at ordinary income rates ranging from 10% to 37%, while long-term gains are taxed at preferential rates ranging from 0% to 20%, depending on income. Income from crypto is taxed at regular income tax rates.
How do I report crypto on my tax return? ›
Any cryptocurrency capital gains, capital losses, and taxable income need to be reported on your tax return. You can report your capital gains and losses on Form 8949 and your income on Form 1040 Schedule 1 or Schedule C depending on your situation.
How long does it take to hold crypto? ›
If you earned cryptocurrency income or disposed of your crypto after less than 12 months of holding, you'll pay tax between 10-37%. If you dispose of your cryptocurrency after 12 months of holding, you'll pay tax between 0-20%.
Capital Gains Tax rate
You'll pay a 0%, 15%, or 20% tax rate depending on your taxable income. If you earn less than $44,626 including your crypto (for the 2023 tax year) then you'll pay no long-term Capital Gains Tax at all.
How does IRS track crypto gains? ›
The IRS tracks crypto transactions using blockchain analysis, exchange reporting, and data matching. These tools help ensure compliance with tax laws. Failure to accurately report crypto transactions can result in severe penalties. US taxpayers risk fines and legal consequences if they don't comply.
Do I need to report crypto if I didn't sell? ›
If you buy Bitcoin, there's nothing to report until you sell. If you earned crypto through staking, a hard fork, an airdrop or via any method other than buying it, you'll likely need to report it, even if you haven't sold it.
How much is crypto taxed after a year? ›
What affects your crypto taxes? For US taxpayers, the key factor affecting tax on crypto gains is whether a profit was realized in the short or long term. Long-term tax rates on profits from tokens held for a year or longer peak at 20%, whereas short-term capital gains are taxed at the same rate as income: 10-37%.
What states do not tax crypto gains? ›
Arizona, Florida, Texas, and Wyoming are among the most crypto-friendly states due to their low or no state income taxes and favorable regulations for crypto businesses. These states offer various incentives that make them attractive to individual investors and crypto companies.
When did you have to pay taxes on crypto? ›
If you're holding crypto, there's no immediate gain or loss, so the crypto is not taxed. Tax is only incurred when you sell the asset, and you subsequently receive either cash or units of another cryptocurrency: At this point, you have “realized” the gains, and you have a taxable event.
How much do you pay taxes on crypto before withdrawal? ›
Crypto tax rates for 2024
| Tax Rate | Single | Married Filing Jointly |
|---|
| 0% | $0 to $47,025 | $0 to $94,050 |
| 15% | $47,026 to $518,900 | $94,051 to $583,750 |
| 20% | >$518,900 | >$583,750 |
You subtract your cost basis from the price you sold an asset for to calculate your capital gains or losses. You need to calculate your capital gains anytime you sell, swap, or spend crypto (as well as gift in some countries). Different countries use different cost basis methods.
What are the tax brackets for capital gains? ›
Capital gains tax rate 2024
| Tax rate | Single | Married filing jointly |
|---|
| 0% | $0 to $47,025 | $0 to $94,050 |
| 15% | $47,026 to $518,900 | $94,051 to $583,750 |
| 20% | $518,901 or more | $583,751 or more |
Aug 16, 2024
