Booked profits in cryptocurrency? Tax levied on gains boil down to this  |  Photo Credit: PTI
Cryptocurrency betting has skyrocketed as is evident from mushrooming new tokens and exchanges. There is no official data on the number of crypto punters in India but think tank IndiaTech estimates it to be 10 million who hold around $1.5 billion in digital assets. The median age of these investors is around 28-29 years.
Trading volumes in digital tokens took off after the Supreme Court in March 2021 set aside 2018 circular issued by the Reserve Bank of India (RBI) which restricted Indian banks from facilitating trading in digital currencies.
“We WazirX India got more customer signups in the first 6 days of April 2021 than the entire first 6 months of 2020. We’re learning and scaling. We’ll continue to work hard on ensuring our users have the best experience,” said Founder & CEO WazirX Nischal Shetty on Twitter on April 6.
Despite serious investor concern and high trading value, the regulatory environment around the same has been very opaque.
This makes planning for taxes on gains from these digital particularly arduous. Experts say gains from crypto investments are ultimately are added to the overall income and therefore are liable to be taxed.
According to IndiaTech, cryptocurrencies should be treated similar to other investments and subject to capital gains taxes under the Income Tax Act. However, without a specific, clear tax policy on crypto, it is difficult for consumers to understand the implications of investing in the asset class, it said in a white paper earlier.
What is policy on tax on cryptocurrency in India
Minister of State (MoS) for Finance Anurag Basu while responding to a question in Rajya Sabha in March stated that Section 5 of the Income Tax Act, 1961, total income of an individual or entity is subject to taxation irrespective of its source or legal status. This means cryptocurrency gains are very much liable to tax as income from same will be added to your overall income. Any business activity related to cryptocurrencies or assets unless exempted will be under the ambit of Good & Service Tax (GST).
How are cryptocurrency gains taxed in India
Calculating cryptocurrency assets will pay income tax on such income by understanding the nature of the investment. It will vary based on whether you are a trader or an investor.
“Purchase and sale of crypto can be broadly classified into two forms, basis it being considered by a trader or an investor. Accordingly, one can either pay taxes in the form of capital gains or classify it as business income and pay the taxes. We see a few initiatives coming up which will simplify tax filing for users in the future. Besides, we would also urge firms like Cleartax and others to make an easy to use plugin which seamlessly integrates with crypto exchanges which would ultimately make it simpler for users to pay taxes,” says Gaurav Dahake, CEO, Bitbns.
In the case of capital gains, if the trading horizon is less than 3 years, then short-term capital gains would apply as per the applicable income tax slab but if the investment period is more than three years then the long-term capital gain would apply and gains can be taxed at 20 per cent with indexation benefit.
“Taxation on cryptocurrencies should depend on the nature of investment, whether it is held in the form of currency or in the form of assets. Profits from the sale of cryptocurrency can be taxed as business income if traded frequently, or as capital gains if held for investment purposes. However, it needs to be noted that, if considered as business income, then the profit can be taxed as per the applicable income tax slab rates, but if it is held for investment purpose, then taxation can be the same as tax gain in the form of capital gains,” said Amit Gupta, co-founder and MD at SEBI-registered income tax solution firm SAG Infotech.
