Can You Avoid Paying Taxes In India On Cryptocurrency?
The traditional method of purchasing cryptocurrency in India is through exchanges like WazirX, CoinDCX, and Zebpay.
What ties these discussions together?
- They’re centrally located.
- They require you to complete a KYC.
- They provide the government with reports on everything.
Suppose you sign up for WazirX and purchase 1 ETH for $3,000; let’s suppose it increases to $7,000 after a year. WazirX is now required to record this transaction with the IRS and your data, such as your PAN. Remember that your bank already completed that transaction when you utilized it.
No matter where you keep this ETH, the IRS now precisely understands how much you have gained. The transaction record shows that you paid $3,000 for 1 ETH, which increased to $7,000. Technically, you now have to pay a 10% LTGC tax on the $4,000 gain. Additionally, you still have to pay income tax of up to 30%.
There isn’t much you can do to avoid paying taxes on this cryptocurrency transaction unless you’re a CA, CFA, or someone with a strong financial history. And those taxes are quite a bit.
So, how do you avoid paying taxes on cryptocurrency gains or saving money?
I can assist you in some way. However, I’m not sure if this is the best course of action or if it would work. It might be a little grayish.
If you have a viewpoint or further knowledge on this subject, I’d like you to join in the conversation in the comments area. I want to talk about many methods we can achieve this.
There are two ways to avoid paying tax on cryptocurrency gains before moving on.
Buying cryptocurrency through a decentralized exchange means that nobody knows who you are.
P2P exchanges using USDT are pooled with other addresses and exchanged on a private wallet.
Let’s look at my suggested approach.
- Purchase stablecoins from a crypto exchange as the first step.
- Transfer the stablecoins to your own, non-custodial cryptocurrency wallet in step two.
- Transferring it to a decentralized exchange is an alternative strategy.
- In Step 3, convert the Stablecoins to your preferred cryptocurrency!
Step 1:First, purchase stablecoins from a cryptocurrency exchange.
Stablecoins like USDT that derive their value from being tied to the US dollar are known as stablecoins. They are equivalent to the current dollar market price, with some fractional deviations. Every stablecoin has a value based on a commodity or item that is tied to it.
Stablecoins are exactly what their name implies—stable. As a result, these cryptocurrencies aren’t nearly as volatile as others.
Stablecoins can be thought of as a blockchain-based equivalent of sovereign currencies.
Thus, buying Stablecoins from a cryptocurrency exchange is the first step. Use FTX, WazirX, Vauld, or Binance.
I advise purchasing BUSD from Binance or USDT from Vauld.
The USDT and BUSD stablecoins keep the USD’s market value stable.
Any fiat cash can be used to purchase USDT, which can then be transferred to an individual crypto wallet. Likewise, almost any cryptocurrency or token you can think of can be exchanged for USDT.
Proceed to the next step after purchasing USDT or BUSD stablecoins.
Step 2: Insert the Stablecoins into your cryptocurrency wallet.
This next action is essential. It would be best if you moved the USDT or BUSD stablecoins you recently acquired from a centralized exchange to your personal, non-custodial, COLD hardware crypto wallet.
Wallets fall into one of two categories: custodial or non-custodial. You don’t have to reveal your identity and control your private keys while using a non-custodial wallet. They are not kept elsewhere. Your private keys aren’t saved in the app’s database and aren’t linked to you in any way.
While private keys in a custodial wallet are inaccessible, you frequently have to provide identification when signing up, creating a login, and more.
Simply put, avoid using a software wallet or a custodial wallet.
A Coinbase wallet is called a custodial software wallet, while a Trust Wallet is not.
A chilly, physical, and concussive wallet is the Ledger Nano.
What you need is a hardware wallet, such as a Ledger or a Trezor, which you can buy with cryptocurrency you get from any place other than a centralized exchange like WazirX. We’re attempting to erase your hardware wallet’s record of you.
Therefore, you must purchase a hardware wallet through a VPN, add cryptocurrency through a decentralized exchange like Uniswap, and have the package sent to a post office box. There is no way to link you to it.
Transferring It To A Decentralized Exchange Is An Alternative Option.
Instead of a hard wallet, send the stablecoins to a decentralized exchange.
The only decentralized exchanges that I’d advise using are PancakeSwap or UniSwap. I can only suggest the programs I use since I use both of them (Pancake Swap more frequently because it interacts with Trust Wallet), even if other tools may be just as good or perhaps better.
In Step 3, convert the stablecoins to your preferred cryptocurrency.
The next step is to convert the BUSD or USDT coins to your favorite crypto coin or token.
This is known as a swap. For a set fee, you can exchange one coin for another.
Utilizing a wallet like Exodus, Atomic, or Ledger to swap your currencies is fairly easy.
When you swap a coin using a non-custodial wallet, you can do it anonymously and exchange a non-volatile coin like USDT for a valuable coin like ETH.
Naturally, we can trace the transaction back to your original exchange wallet since it’s taking place on the blockchain.
But after you exchange USDT (a stablecoin) for ETH (an altcoin), connecting that address to you becomes impossible.
Additionally, the exchange from whom you purchased the stablecoins must disclose the transaction while utilizing their platform. Any USDT or BUSD transaction that doesn’t change by 50% in a year is reported.
The IRS is not interested in what you do with your coins after you remove them from the exchange wallet. This is a supposition I’ve made, at least for the time being, until we see the regulation in effect.
In my case, when DOGE reached an all-time high, I only sold about 15% of my Dogecoins. I changed the rest into ETH and SOL. Once more, there is no way to back this up. I could display an image for you, but I won’t. Alright, only one
But there’s no need to show off your cryptocurrency holdings.
Privacy is the first rule of cryptocurrency investing.
The government doesn’t have the time, money, or desire to track how much money goes in and out of each wallet.
Unless you also give them a compelling explanation. So be sure to record your income appropriately and pay your taxes on time and with due attention.
I think this is a straightforward technique to avoid paying capital gains taxes, but I’m not sure if it makes sense given that the blockchain always allows you to track the history of transactions. The benefit of decentralized finance is that.
There is just no way to carry out your transaction undetected. Where the link terminates, you can claim ownership of that address.
Another method for reducing tax on cryptocurrency earnings is NFT. I don’t believe in NFTs, but after doing some research, I learned they were becoming so well-liked, especially among celebrities and miners with significant followings.
You can essentially write off the taxes on these purchases if you have many of your own NFT collections and make a small number of pricing adjustments. Since NFTs are essentially meaningless pieces of code that make a mockery of the entire crypto environment, I won’t talk about it here. However, you can find additional information about it by checking online forums.
I’m unsure how the IRS or the Indian government will view it. Because it’s unclear what the government thinks of cryptocurrency. Nothing is definitive yet on whether it should be taxed, regulated, controlled, or banned.
It would be best if you, therefore, consider your options before continuing with this approach. Always conduct your research before making a financial decision.