Cryptocurrency investors rush to tax experts to get clarity on taxation

Cryptocurrency investors rush to tax experts to get clarity on taxation

Cryptocurrency investors rush to tax experts to get clarity on taxation&nbsp

New Delhi: As the government is looking to come up with a cryptocurrency law, those who already invest or trade in this asset class are rushing to their tax advisors to get clarity on the taxation of return generated from this investment. Investors want to know the income tax implications on their returns, which can range anywhere up to 30% given the regulatory vacuum around cryptocurrencies, the Economic Times mentioned in a report citing tax experts.

Tax experts are divided as to whether the returns from crypto assets must be categorised as capital gains — what is applicable on assets such as equities or real estate — or business income.

“As regards tax treatment of sale of cryptocurrency held by individual investors, the principles governing taxation of securities as capital gains versus business income would equally apply in respect of cryptocurrency assets,” the financial publication quoted Sudhir Kapadia, national leader, tax at EY India as saying.

“In other words, if the frequency and number of purchase and sale transactions is very high, the tax authorities may be inclined to assert business income characteristics for these transactions.”

Given the meteoric rise in cryptocurrencies this year, many investors have made substantial returns from this asset class and have even booked profit.

In most cases, the money has come back to their bank accounts directly from crypto wallets or through some other channels and this is set to attract taxman’s attention, say tax experts.

According to an earlier ET report, the government is planning to define cryptocurrencies in the new draft bill and will treat them as an asset/commodity for all purposes, including taxation.

The draft bill also moots proposals to compartmentalise virtual currencies based on their use cases into payments, investment/security, and utility (source of income), people close to the development told the business daily.

Tax experts say that tax on cryptocurrencies will also depend on how the government defines the asset.

Many investors have started enquiring on how to tax their returns from crypto assets, say tax experts. “The enquires relate around aspects such as whether cryptos are to be treated as assets or goods, exchange of one type of cryptocurrency for another cryptocurrency, valuation of cryptos, conversion of cryptos into fiat, taxability of consideration received in cryptos by non-crypto businesses, gifts of cryptos (i.e. transfer of cryptos from one digital wallet to another without consideration), computation of income on cryptos and the tax rates, indexation, deductions allowable on such income,” the ET report quoted Paras Savla, partner at KPB & Associates, a tax advisory firm as saying.

“It will only be relevant if the holding period exceeds three years and there is the possibility of long-term capital gains, which are taxed at a lower rate of 20% (with the benefits of purchase price indexation). If the holding period is less than three years, the gains would be short term and taxable at normal applicable marginal rates, ” said Kapadia.

Tax experts point out that a tax of about 30% would be levied if the returns from cryptocurrency trading were classified as business income.

In all probability, the tax department is set to question investors who have invested in crypto assets. As per the new income tax declaration forms, taxpayers are required to disclose all their assets to the tax department.


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