7 Ways to Save Money on Crypto Taxes in India by 2023 - ITR Guide
Introduction
In income tax purposes, cryptocurrency is classified as “property.” And the IRS considers it a capital asset for the average investor. As a result, cryptocurrency taxes are the same as any other gain arising from the sale or exchange of a capital asset. When you buy a capital object, such as a stock, bond, property, widget, Dogecoin, Bitcoin, or another sort of investment, you create a basis equal to the purchase price. When you sell something, you can determine if you have a capital gain or loss by comparing the sales price to the cost basis.
If your proceeds are greater than your basis, you have a capital gain. You will have a capital loss if it is reversible. You must also consider how long you owned the asset. Your cryptocurrency gains and losses will be categorised as “short-term” or “long-term” depending on how long you hold them. This distinction will also have a substantial impact on the amount of cryptocurrency taxes you must pay.
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7 Ways to Save on Crypto Taxes in India
Wait till your short-term gains become long-term gains: As previously discussed, different capital gains rates will be applicable depending on how long you own bitcoin. Hold onto your cryptocurrencies long enough to convert short-term gains into long-term gains if you want to lower your tax burden. If you can hang onto your bitcoin for at least a year before selling it, you’ll probably pay a reduced tax rate on any capital gains, even if it’s not easy.
Make capital gains and losses equal: Crypto investors can minimise their tax burden by balancing capital gains with capital losses. This works by applying any remaining long-term capital gains to any losses on crypto assets sold throughout the year to minimize your taxable gains on cryptocurrency (save Crypto taxes) or other appreciated investments.
Sell During a Low-Income Year: Another thing to consider is selling in a low-income year while you wait for your cryptocurrency gains to move from short- to long-term. Taxes on long-term and short-term earnings can be minimised by selling during a low-income year. If you have short-term profits that are subject to ordinary income tax, you won’t have as much further income piled on to place you in a higher tax bracket.
Reduce Your Taxable Income: Lowering your taxable income is another tried-and-true strategy of tax minimization, which is closely related to selling your appreciated investments in a low-income year. To minimise your taxable income, you must explore the tax law for tax credits and deductions.
Invest in cryptocurrency with a Self-Directed Individual Retirement Account: Investing in a tax-free or tax-deferred Self-Directed Individual Retirement Account (SDIRA) is another way to lower your cryptocurrency tax liability. As a result, when you contribute to a Roth SDIRA, you either pay taxes in advance because you anticipate paying more in taxes in retirement or you pay taxes now because you may have a lower taxable income in retirement.
Give the possessions to a family member: Another way to reduce your bitcoin tax payment is to change your spending habits. Consider donating your cryptocurrency to family members. You can give up to $13,25,864 per individual per year without paying taxes. Although the recipient received the cryptocurrency’s base, they can have a low enough income to avoid paying taxes on the asset’s appreciation when it is sold. Or, at the very least, pay less in taxes than you would if you sold the bitcoin on your own.
Donate Valuable Cryptocurrency to a Beneficial Organisation: You can consider donating your cryptocurrencies to a worthwhile cause, similar to how you might give appreciated cryptocurrency to a family member. This will result not only in no capital gains tax, but also in a significant tax reduction that you can claim on your tax return.
At the time of donation, you can deduct the asset’s appreciated fair market value from your taxable income. If you have $50,000 (41,43,325 in Bitcoin) and decide to donate it to a cause you usually support, you may be able to claim this as a charitable deduction on your tax return. Furthermore, if the nonprofit organisation is a 501(c)(3) tax-exempt organisation, it will not have to pay capital gains taxes when it sells the donated bitcoin.
Conclusion
In order to save crypto taxes in India in 2023, strict adherence to tax legislation and sufficient paperwork is required. Cryptocurrency transactions are subject to income tax rules, and it is critical that you appropriately declare your crypto earnings on your Income Tax Return (ITR). You can calculate your taxable gains or losses by keeping precise records of transactions, including purchase/sale dates, prices, and associated expenditures.
Using tax-saving provisions, such as keeping investments for a lengthy period of time to qualify for capital gains tax benefits, can assist reduce your liability. Seeking tax advice and being up to date on changing crypto tax legislation are critical for effective tax planning in the cryptocurrency field.
