Companies currently have to disclose any holdings or dealings in cryptocurrencies or crypto assets in their filings with the Registrar of Companies (RoC).
The government has sought the views of tax experts on disclosure and taxation guidelines for companies and family offices that hold cryptocurrencies, said two people aware of the matter.
If you own Cryptocurrencies, here’s why Budget 2022 will be really important for you
In the upcoming budget, the government is looking to fine-tune the definition of income and gains for crypto assets. It has also sought opinions from senior tax advisors on whether the income earned from trading or investing in cryptocurrencies could be treated as business income as against capital gains. How will this move impact crypto investors, exchanges and companies? ET’s Sachin Dave with details.
Companies currently have to disclose any holdings or dealings in cryptocurrencies or crypto assets in their filings with the Registrar of Companies (RoC). One of the people said the government could clarify the tax implications of such investments in the upcoming Budget.
Most companies that hold cryptocurrency on their books are offering them as income (mainly, business income), but because there is no clarity on taxation, it is really difficult to compute actual income and how to treat them, tax experts said.
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“There are companies and family offices that have several transactions during the year, and reconciliation becomes a really difficult process. Further, the set-off of losses from cryptocurrency transactions with other business income also requires clarity,” said Yashesh Ashar, partner at tax advisory firm Bhuta Shah & Co.
Losses from the investment or trading are unlikely to be allowed to set off against regular profits as these are “speculative transactions”.
“There are already regulations around holding cryptocurrency on companies’ or family offices’ books, and it only makes sense to have a regulation around disclosure and taxation. Many early investors have made substantial gains in cryptocurrencies and they may also benefit if the government comes up with a framework on whether this will be long-term or short-term capital gains,” said Siddharth Sogani, founder of CREBACO, a cryptocurrency research firm.
Tax experts pointed out that companies are reporting and applying tax on their returns from cryptocurrencies differently due to regulatory confusion.
“There could be three types of companies that would have exposure to cryptocurrencies, first those that are into the business of crypto assets, second those who may have only invested in cryptocurrencies, and third, those companies that accept payment in cryptocurrencies. Income from the sale of investments in crypto should be treated as capital gains, whereas income from dealing in crypto or where sale consideration is received in crypto should be treated as ordinary business income of the company,” said Sudhir Kapadia, national leader-tax, EY India.
The ambiguity is also because of the nature of cryptocurrency, say tax experts. It is still not defined as to whether cryptocurrency is a currency, an asset, or a commodity. Tax rates and how companies treat them would depend on that, say experts.
The new regulations could also mean that companies and even family offices will have to report not just Indian holdings but even those outside India to the RoC as well as the tax department.
The government is merely coming out with tax-related clarifications and is not looking to roll out a separate cryptocurrency Bill in the upcoming Budget, ET reported on January 12.
The government is looking to amend current income tax and disclosure rules in the Budget to include cryptocurrency, ET reported earlier on December 4.
The government wants to capture cryptocurrency income and investments within and outside India, two people aware of the development said, as per the December ET report.
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