Tax implications of bitcoin arbitrage in India (2024)

FAQs

Tax implications of bitcoin arbitrage in India? ›

Cryptocurrencies are categorised as virtual digital assets (VDAs) in India and are subject to taxation under the Income Tax Act 1961. As per Section 115BBH, the tax rate for gains from trading VDAs is 30% plus 4% cess, i.e., if you sell a cryptocurrency for a profit, you must pay 30% tax plus an additional 4% cess.

Crypto Tax Rate in India

In India, you'll pay a 30% tax on profits from trading, selling, or spending cryptocurrency. Additionally, a 1% TDS is applicable on the sale of crypto assets exceeding ₹50,000 (₹10,000 in certain cases) within a single financial year.

Benefits and Legal Status: Arbitrage offers quick, low-risk profits and is legal in India, provided traders comply with existing regulations.

Short-term capital gains on holding the arbitrage fund for under one year are taxed at 15%. You would have to pay long-term capital gains tax at 10% on capital gains if you hold the investment for one year or more. However, long-term capital gains below Rs 1 lakh in a financial year are tax-free.

Reporting Profit for Taxes:You would report the $10 as your taxable income from arbitrage betting for this specific event. You're not taxed on the total amount returned to you ($210) but on your net profit—the money you earned beyond what you wagered.

Gifts of crypto from close family members are tax free, and gifts under RS50,000 from friends and relatives are tax free. If you receive a gift of crypto - whether that's coins, tokens, or an NFT - you'll generally be liable to pay Income Tax at your applicable slab rate, based on the fair market value of your gift.

As per the Indian Tax Department, crypto gifts are movable property gifts. Hence, here are the types of crypto gifts that do not attract any taxes in India: You do not have to pay taxes if you've received cryptocurrency gifts valued below INR 50,000 in a financial year.

Crypto arbitrage is a low-risk gain strategy because it involves lower risk than traditional trading. Predictive analysis can sometimes be incorrect, whereas exchange price differences are legitimate. The risk exposure automatically decreases because it only takes a few minutes to complete a trade in crypto arbitrage.

Arbitrage being a low-risk strategy, the profit that is gained often corroborates with a lower return. That being said, there are pros and cons associated with crypto arbitrage. Quick returns: Traders can gain immediate returns after identifying price differences of cryptocurrencies across exchanges.

Arbitrage trading has grown profitable for sharp investors looking to invest and profit from price inefficiencies across different markets.

Is arbitrage fund better than FD? ›

Q: Are arbitrage funds better than FD? A: Arbitrage funds and Fixed Deposits serve different purposes. Arbitrage funds can offer better post-tax returns and liquidity than FDs, especially for those in the higher tax bracket. However, FDs provide a guaranteed return and are safer.

In terms of risk factors, liquid funds are a much safer investment than arbitrage funds as they invest mainly in debt instruments.

What reporting is required? At a minimum, the arbitrage rebate and yield restriction liabilities on an issue must be computed at least every five years and on the final redemption or maturity date. If an issue has accrued a liability, the issuer has 60 days from the computation date to remit payment to the IRS.

With the right retail arbitrage strategy and enough time to invest, it's possible to make a good income. Once your arbitrage gig gets going, you might find yourself with more retail inventory than when you started, and more orders to fulfill.

Arbitrage has the effect of causing prices in different markets to converge. As a result of arbitrage, the currency exchange rates, the price of commodities, and the price of securities in different markets tend to converge. The speed at which they do so is a measure of market efficiency.

Income generated from trading, selling, or swapping cryptocurrencies is subject to a flat tax rate of 30% under Section 115BBH of the Income Tax Act. Moreover, this tax applies to all capital gains, regardless of the holding period (short-term or long-term).

Under section 115BBH, gains from cryptocurrency trading in India are taxed at 30%. As per section 194S of the Income Tax Act, 1% TDS is applicable to cryptocurrency transactions, perpetual contracts, and transfer of VDAs. TDS is applicable to both buyers and sellers on crypto-to-crypto transactions.

18% GST is applied to bitcoin trading. For example, if a person pays for a cup of coffee with Bitcoin, the transaction would be subject to GST if the supplier of the coffee is registered for GST.

Tax on Crypto Transactions: In India, there is a 30% tax on all cryptocurrency activities like trading, mining, and exchanging. 2. TDS Requirement: A 1% Tax Deducted at Source (TDS) is applicable with a threshold of ₹50,000, and in some cases, it is ₹10,000.