Mining time = FMV taxed at slab rate. Sale time = VDA 30% under 115BBH. Business expense deductions (electricity, ASIC) against mining income only. Schedule VDA mandatory.
Crypto mining — DUAL TAX EVENTS: (1) AT MINING TIME: Mined coin's FMV (Fair Market Value) on date of mining = INCOME at slab rate (or business income). (2) AT SALE TIME: Subsequent sale of mined coins = VDA gain under Section 115BBH at 30%. Acquisition cost = FMV at mining time. EXAMPLE: Mine ₹50K worth Bitcoin on Day 1 (income ₹50K at slab). Sell for ₹70K on Day 30. Gain ₹20K → 30% under 115BBH = ₹6K. Total tax ₹50K × slab + ₹6K = potentially ₹20-30K depending on slab.
(1) BUSINESS: Regular activity, multiple miners, significant electricity costs. ITR-3 with full expense deductions (electricity, hardware depreciation, internet). (2) HOBBY/CASUAL: Occasional mining. Likely 'other sources' income at slab rate. NO expense deductions allowed. CRITERIA: Frequency + scale + intent. Most serious miners = business. Hobby miners = other sources.
BUSINESS MINING expenses deductible against mining income at slab rate (NOT against VDA gains at 30%): (1) ELECTRICITY: massive cost. Bills documented. (2) ASIC HARDWARE: 60-100% depreciation. (3) INTERNET. (4) COOLING (AC bills). (5) FACILITY RENT. (6) Mining pool fees. (7) Software subscriptions. CRITICAL: Don't claim expenses against VDA 30% — those allowed against slab-rate mining income only.
INDIAN MINING viability: (1) High electricity costs (₹6-10/unit). Often unprofitable for retail miners. (2) Bitcoin: requires ASIC hardware ₹3-10L investment. (3) Profitability narrow due to power costs + competition with China/US large farms. (4) PROFESSIONAL Indian miners use industrial power tariffs + free electricity zones. (5) TAX BURDEN: business income at slab + VDA 30% on sale makes it doubly taxed. INCREASINGLY UNVIABLE in India tax + cost environment.
Indian residents mining via foreign pools (e.g., F2Pool, Slushpool): (1) Mining income taxed in India regardless of pool location. (2) Coins received = income at FMV. (3) Schedule FA disclosure for foreign holdings. (4) ED + Income Tax investigating non-compliance. (5) RECOMMENDED: Indian-domiciled mining pools (limited options) for cleaner compliance.