Taxability of Crypto received from referral program

Earning crypto from referral programs is a process that involves promoting a crypto-related product or service to your friends, family or social media followers and getting rewarded in cryptocurrency for each new user who signs up or takes a specific action. Here are some steps individuals can follow to earn crypto through referral programs:

1. Look for crypto-related products or services that offer referral programs. Some popular options include crypto exchanges, wallets, and lending platforms.

2. Sign up for the referral program and obtain your unique referral link or code.

3. Share your referral link or code with others via social media, email, or other channels.

4. When someone clicks on your referral link or code and signs up for the product or service, you'll receive a reward in cryptocurrency, such as Bitcoin, Ethereum, or other altcoins.

5. Monitor your earnings and track your referrals to optimize your strategy and maximize your earnings.

Keep in mind that earning cryptocurrency through referral programs typically requires effort and time, as you'll need to promote the product or service effectively to attract new users. Additionally, referral rewards may vary depending on the program and the type of action required from the referred user. Therefore, it's essential to read the program's terms and conditions carefully to understand the requirements and the potential rewards.

What Types of Rewards Do Crypto Companies Offer?

Rewards in crypto referral programs may vary depending on the type of company or crypto project. The most common ones are free crypto coins or tokens, although some others also offer free products, services, gift cards, discount vouchers, or coupons.

What would be the Taxes on the crypto earned from referral programs?

In the realm of Indian income tax matters, it is noteworthy to discern that crypto referral bonuses hold the status of additional income and consequently, they are not exempt from Income Tax in India. In the event that the bonus is paid in the form of cryptocurrency, it is imperative to utilize the fair market value of the crypto at the time of receiving it, to assess the quantum of such additional income. Furthermore, when the crypto is eventually disposed of by means of selling, trading, spending or transfer, it is incumbent upon the recipient to discharge their tax liabilities by remitting the applicable Capital Gains Tax on any profits accrued.

How to calculate taxes on the crypto earned from referral programs?

Let's answer this question with an example: Assuming that an individual, for instance, Daniel, obtains a referral bonus of 10 USDT on January 15th, 2023 from Binance, it is imperative to acknowledge that USDT is a form of cryptocurrency. Thus, the fair market value of the USDT on the precise day of receipt must be employed for the calculation of supplementary income, for tax purposes.

Assuming that, the conversion rate of 1 USDT was ₹81 on January 15th, 2023. Consequently, the aggregate referral bonus awarded to Daniel in terms of Indian rupees equates to 10 USDT * ₹81 = ₹810. This particular amount is categorized as Income from other sources, and therefore, becomes liable to income tax in India.

Subsequently, Daniel must disclose this sum as part of his Income from other sources and pay his taxes based on the appropriate slab rate applicable to his overall income.

It is also significant to bear in mind that if Daniel eventually disposes of, trades, or transfers USDT at a later point, he will be accountable for Capital Gains Tax as well if the fair market value of the USDT on that specific day surpasses its value at the time of obtaining the referral bonus.

Conclusion

In India, Income from Other Sources refers to any money earned that does not fall under the head of salaries, profits and gains of business or profession, capital gains, or income from house property. Some common examples of income that fall under the Income from Other Sources category include:

1. Interest income from savings accounts, fixed deposits, and other investments.

2. Rental income from properties that are not used for business or profession.

3. Income from gambling, lotteries, or card games.

4. Income from hobbies or other personal pursuits, such as writing or photography.

5. Income from gifts, inheritances, or other windfalls.

6. Royalty income from patents, copyrights, or other intellectual property.

7. Any other source of income that is not covered under the other heads of income. This is the place where your crypto earned from referral programs would be added and taxed accordingly.

It is important to note that all Income from Other Sources incomes are subject to taxation, and the tax liability varies based on the applicable tax slab and other relevant factors. It is advisable to consult a qualified CA for guidance on the correct reporting and taxation of Income from Other Sources incomes.

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DISCLAIMER

The contents of this article are for information purposes only and do not constitute an advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc before acting on the basis of the above write up.  The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that we are not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof. CA Mitesh and Associates is India's leading Cryptocurrency Taxation Firm which is committed to helping people navigate complex tax laws and banking regulations. Our main aim is to assist the individuals with applicable laws & regulations compliance and providing support at each & every level to make sure that they stay compliant and grow continuously. For any query, help or feedback you may get in touch here - Appointment with CA. Please note the all consultations with the CA are Paid consultations. Financial Year 2023.