- India’s crypto tax rules differ from those for regular salary income.
- ₹12 lakh salary and crypto profits face different rules under income tax regulations.
- While digital asset gains are taxed at a 30% VDA tax rate, salary income faces at a low rate.
India’s tax policies draw a clear line between salary income and crypto gains. While a ₹12 lakh salary and the same ₹12 lakh earned through crypto profits may look similar on paper, they are subject to different tax rules. While digital asset gains face a 30% crypto tax, salary income tax is treated differently.
How Is Crypto Tax Different from Salary Income in India?
Today, South Indian trader Nifty Wizard shared an X post highlighting the key difference between crypto and salary income taxes in the country. In India, salary is taxed under the country’s regular income-tax slabs. This means that the rate can vary based on the person’s total income and the applicable tax rules.
But on the other hand, VDA tax is different. Crypto gains are covered under a separate tax rule for Virtual Digital Assets (VDAs). In detail, gains from VDAs are taxed at a flat 30%, in addition to the individual’s usual income tax.
The ₹12 Lakh Tax Paradox
Explaining the difference between salary income and VDA taxes, the trader put forward a simple comparison. The comparison included two people earning the same ₹12 lakh, but through different sources of income. Under India’s tax rules, both will be taxed differently.
In simple terms, a person with a ₹12 lakh salary may have a lower tax liability. They will be eligible for the standard deduction and the eligible rebate. At the same time, a person making a profit of ₹12 lakh from digital assets will face a 30% crypto tax.
Why Salary and Crypto Profit Are Treated Differently
Notably, both salary and crypto gains are treated differently under India’s Income Tax rules. This is mainly because salary is considered income from employment, which makes it subject to the country’s regular income tax rules. VDA gains, on the other hand, are covered under Virtual Digital Asset (VDA) tax rules.
The higher VDA tax rate is mainly because of the government’s cautious approach to digital assets. India considers crypto trading as risky and highly speculative. Thus, the 30% VDA gain tax discourages people from excessive retail trading. In addition, the tax also helps the country to earn revenue.
The 30% VDA Rule Changes the Calculation
It is worth noting that the 30% tax can make a big difference to how much a trader actually keeps from their gains. This means that even if a person earns ₹12 lakh from digital asset trading, a significant portion of it may go toward taxes. This makes the digital asset tax much higher than the comparatively lower salary income tax.
What Happens When the Crypto Trader Loses?
The crypto tax burden becomes even more challenging when a trader makes a loss. The country’s tax rules do not allow losses from one VDA transfer to be adjusted against profits from other crypto transactions. Thus, even if a person loses significant amounts during a trade, he is still subject to crypto taxes for gains from other transactions.
The 1% TDS Problem for Active Traders
Indian crypto traders also face another challenge while trading digital assets. Under the country’s crypto tax rules, eligible digital asset transactions face a 1% TDS. If a trader remains active in trading, frequent TDS deductions will be a notable burden for them. This means that a portion of their money will be deducted before they even calculate their final tax liability.
Is India Taxing Risk More Heavily Than Work?
Significantly, the Indian government’s different approach to salary income and crypto taxes puts digital asset traders in a difficult position. While salaried income gets the benefit of the regular tax structure, crypto gains are taxed heavily. This makes crypto profits less attractive when taxed.
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It is important to know that India’s crypto tax rules can have a different impact on how people become engaged in the country’s crypto space. As VDA tax is comparatively heavy, traders may be less attracted to frequent trading. The 30% tax on VDA gains and the 1% TDS can put pressure on traders’ cash flow and reduce the appeal of short-term trading.
Related: $19B in Indian Crypto Activity Could Be Taxable—What Should Indian Investors Know?
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