New Delhi, India: As the government considers enacting a cryptocurrency law, those who already invest or trade in this asset class are contacting their tax consultants for clarification on how the profit created from this investment would be taxed. According to the Economic Times, which cited tax specialists, investors want to know the income tax consequences on their profits, which can range anywhere from 0% to 30% due to the regulatory vacuum surrounding cryptocurrencies.
Tax experts disagree on whether crypto asset returns should be classified as capital gains — which apply to assets like stocks and real estate — or business income.
“In terms of the tax treatment of individual investors’ sales of cryptocurrency, the principles governing the taxation of securities as capital gains versus business income would equally apply in respect of cryptocurrency assets,” Sudhir Kapadia, national leader, tax at EY India, was quoted as saying in the financial publication.
“In other words, if the frequency and volume of purchase and sale transactions are extremely high, tax authorities may be tempted to attribute these transactions to corporate income.” Advertising
Given the spectacular growth in cryptocurrencies this year, many investors have seen significant returns and even profit from this asset class.
According to tax specialists, most of the money has returned to their bank accounts straight from crypto wallets or through other routes, which is likely to attract the notice of the taxman.
According to a previous report from ET, the government intends to classify cryptocurrencies in the new draught bill and consider them as assets/commodities for all purposes, including taxation.
According to those familiar with the situation, the draught bill also considers ideas to divide virtual currencies into three categories depending on their use cases: payments, investment/security, and utility (source of income).
Taxation of cryptocurrencies, according to tax experts, will be determined by how the government defines the asset.
According to tax specialists, many investors have begun to inquire about how to tax their returns from crypto assets. “The questions concern whether cryptos should be treated as assets or goods, the exchange of one type of cryptocurrency for another, the valuation of cryptos, the conversion of cryptos into fiat, the taxability of consideration received in cryptos by non-crypto businesses, gifts of cryptos (i.e. the transfer of cryptos from one digital wallet to another without consideration), the computation of crypto income and tax rates, indexation, and deductions allocable to cryptos.”
“It will only be important if the holding period is longer than three years and long-term capital gains, which are taxed at a lower rate of 20%, are possible” (with the benefits of purchase price indexation). “Short-term profits would be taxable at standard relevant marginal rates if the holding period is less than three years,” said Kapadia.
According to tax experts, if bitcoin trading profits were categorised as business income, they would be subject to a 30% tax.
Investors who have invested in crypto assets will almost certainly be questioned by the IRS. According to the new income tax declaration forms, taxpayers must reveal all of their assets to the IRS.