Hi Sir, I am planning to buy crypto tokens in FY 2023-24. As per the tax law, I have to pay 1% TDS which will be debited by the crypto exchange. when I sell my crypto tokens in any of the subsequent financial years, I will have to pay 30% tax on the profit (plus surcharge). I wanted to know how will this 1 % surcharge be adjusted when I sell my cryptos in coming years? Or will I have to pay 1% this financial year and additional 30% taxes (plus surcharge) when I sell my cryptos. Kindly clarify the matter. Thanks in advance.

Ans: You're right about the crypto tax regulations in India for FY 2023-24. Here's a breakdown of how the 1% TDS and 30% capital gains tax work:

1% TDS on Crypto Purchase:

This 1% Tax Deducted at Source (TDS) applies when you buy crypto tokens exceeding a certain limit (?50,000 per year or ?10,000 in specific cases) through a crypto exchange in India.
It's deducted by the exchange itself and deposited with the government.
30% Tax on Capital Gains:

This tax applies when you sell your crypto tokens for a profit (selling price > buying price).
You'll need to pay 30% tax (plus applicable surcharge and cess) on the capital gains earned.
Important Note: Unlike stocks, there's no distinction between short-term and long-term capital gains for crypto. So, the entire profit is taxed at 30%.
How the 1% TDS is Adjusted:

The 1% TDS you pay doesn't directly get deducted from your capital gains tax.
It acts as a pre-payment towards your overall tax liability.
When you file your income tax return, you can claim credit for the 1% TDS deducted at the time of purchase. This will reduce your total tax payable.
Here's an example:

You buy Rs.1 lakh worth of crypto tokens and the exchange deducts 1% TDS (Rs.1,000).
Later, you sell these tokens for Rs.1.2 lakh, making a capital gain of Rs.20,000.
You'll need to pay 30% tax (plus surcharge and cess) on Rs.20,000 (capital gains).
However, you can claim credit for the Rs.1,000 TDS already deducted.
This will reduce your final tax liability.
Word of Caution on Crypto Investment:

It's important to be aware of the high volatility associated with cryptocurrency investments. The value of your tokens can fluctuate significantly, leading to potential losses.
Unlike stocks, the Indian government doesn't regulate cryptocurrencies. This means your investment isn't protected by any regulatory bodies.
Recommendation:

While crypto can be a high-risk, high-reward investment opportunity, it's wise to carefully consider your risk tolerance and conduct thorough research before investing. There are established and regulated investment options available that might better suit your financial goals.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner

www.holisticinvestment.in