How To Avoid Tax on Cryptocurrency In India?

How To Avoid Tax on Cryptocurrency In India

Cryptocurrency has gained a lot of popularity in India in the last few years and has attracted all the investors towards it. That is why keeping in view the increasing investment in cryptocurrency, the government has started imposing some taxes and regulations on cryptocurrency transactions. As a responsible investor, it is important to properly understand this taxation and regulation and formulate a proper strategy to reduce your tax liabilities. This article will guide you to understand India’s tax framework and effective tax planning strategy

What is cryptocurrency taxation in India?

cryptocurrency is considered more of an asset than a currency in India because there is a lot of profit in it. And whatever profit is made on the sale or exchange of cryptocurrency is subject to capital gain tax. let’s see a brief overview of how these taxes work.

What are Types of Capital Gains ?

1. Short Term Capital Gains (STCG)

If you sell any cryptocurrency within 36 months, then the profit from it will come under short-term capital gains. This tax will be applicable to you like your income tax slab rate

2. Long Term Capital Gains (LTCG)

If you sell any cryptocurrency after 36 months of cardinality, then the profit from it will come under long-term capital gains. And in long-term capital gains, the lower tax rate is 20%, which reduces your tax amount and you can also take indexation benefit from it.

How To Minimize Tax on Cryptocurrency?

1. Holding period management

After investing in cryptocurrency, it is better to sell it within 36 months because if you sell after 36 months, you will get long-term capital gain. The lowest tax rate in this is 20% and you can also avail the benefit of tax indexation in it.

2. Loss Harvesting

The cryptocurrency market is quite volatile and it also has quite a lot of losses. If you suffer a loss after investing in cryptocurrency then the app can take advantage of it. If you have suffered a loss in cryptocurrency then you can offset it with your capital gains.

3. Tax Harvesting

Tax harvesting is a smart way to save tax. Suppose you have cryptocurrency whose value is more or less. When you sell cryptocurrency, you have to pay some tax on the profit you make. But here is a trick, if you have some crypto that is running in loss, you can sell it and book the loss and by showing the same loss in another profit app, you can reduce your taxable amount. And after selling crypto at a loss, you can buy it again, in this way, you can continue your investment while saving tax. This is a smart strategy to save your income tax.

4. Utilizing exemptions and rebates

Often people look for ways to reduce their income tax by taking the help of exemptions and rebates. In India, there are many exemptions under the Income Tax Act, one of them is under section 80c in which you can get tax exemption by depositing an amount up to Rs 1.50 lakh, that is why most people invest money in the segment coming under section 80C. We have to invest

A rebate is like a refund. Suppose that you would have paid a lot of tax after selling your crypto coins, and then the government can return some money to you. If you have bought something from a store, you get your money back from the same store due to some discount, this is called rebate.

In this way, you can save your tax by taking the help of exemptions and rebates

5. Strategic Gifting

You can reduce your tax in India by gifting cryptocurrency to your family members. If you gift cryptocurrency to close relatives (like wife or husband, children or siblings) then it is exempt from tax. Gifting cryptocurrency to family members falls in the lower tax bracket, through which you can reduce your overall tax burden, but remember this Keep in mind that giving gifts to non-relatives above Rs 50,000 is taxable.

6. Charitable Donations

You can reduce your taxable amount by donating money to a registered charitable trust. You get this facility under section 80g of the Income Tax Act.

For example, suppose you have earned Rs 10 lakh by selling cryptocurrency in a year and you can donate Rs 1 lakh from it to charity, then you will have to pay total tax not above Rs 10 lakh but only above Rs 9 lakh It will happen. This will help you in saving tax.

Hello there! I am Pradip Sontakke and this is my website FinanceGyan.org.in. I cover a wide range of topics such as Cryptocurrency, Investment, Insurance and Loans so that people can have all the necessary information to make their own financial choices.

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