Welcome to the world of crypto referrals!
From influencers to your crypto enthusiast friends, whoever referred you to a crypto project, probably also told you that your crypto referral rewards could be taxable in India.
Since you don’t know anything about tax on crypto referral rewards, we’re here to explain.
In this guide, we will explain what a crypto referral is, how it works, and the tax implications of receiving a referral bonus in India.
What is a Crypto Referral?
A crypto referral is a system in which a current user of a cryptocurrency platform or service refers a new user to that platform. In return, the current user receives a crypto referral bonus, which is usually in the form of a certain amount of the cryptocurrency which the platform supports.
The new user referred by the current user will also receive an incentive, such as a discounted trading fee or a bonus amount of cryptocurrency. It’s usually a win-win situation for both parties involved.
How do Crypto Referrals work?
Crypto referrals work by giving you a unique referral link or code to share with potential new users. When someone signs up for the platform or service using your referral link or code, you get a special bonus, usually in the form of a certain amount of the cryptocurrency on the platform or service supports.
The process is pretty easy and straightforward. Depending on the platform, you might need to wait for the new user to complete certain actions, such as making a deposit or trading a certain amount, before getting your referral bonus. But the good news is that your friend also gets an incentive, such as a discounted trading fee or a bonus amount of cryptocurrency.
Learn how much tax are you liable to pay on your crypto gains.
Taxes on Crypto Referrals
Crypto Referral bonuses are considered additional income for tax purposes and are subject to Income Tax in India. If the bonus is paid in crypto, the fair market value of the crypto on the day it was received must be used to calculate the amount of additional income.
When the crypto is later sold, traded, spent, or gifted, Capital Gains Tax must be paid on any profit.
Calculating taxes on Crypto Referrals
Let’s say a person, example Sunil, received a referral bonus of 10 USDT on April 30, 2022. As USDT is a cryptocurrency, the fair market value of the USDT on the day it was received must be used to calculate the amount of additional income for tax purposes.
On April 30, 2022, the value of 1 USDT was ₹80. So, the total referral bonus received by Sunil in terms of INR is 10 USDT * ₹80 = ₹800. This amount is considered as Income from Referral rewards and is subject to income tax in India.
Sunil will have to report this amount as part of his Income from other sources (IFOS) and pay taxes on it as per the slab rate applicable to his total income.
Also, it’s important to note that if he later sells, trades, or gives away the USDT, he will be liable for Capital Gains Tax if the fair market value of USDT on that day is higher than the value when he received it as a referral bonus.
💡In India, IFOS (Income from Other Sources) is a category of income that is subject to income tax. This includes any income that falls outside of salary, business, or capital gains income, etc.
Examples of IFOS may include rental income, interest income, and income from investments.
When calculating taxes, IFOS is included in an individual’s total income and is taxed at the appropriate rate, which can range from 0% to 30% based on the individual’s overall income.
It’s crucial to keep in mind that in India, referral bonuses that fall under the category of income from other sources (IFOS) are considered additional income and are subject to income tax based on the applicable slab rate for the individual.
Tax doesn’t always have to be difficult, however. We at KoinX are built to simplify your tax compliances for you. You can skip all the technicalities of crypto taxes yourself and let KoinX take care of it.