Investors: Investors rush to seek tax advice on crypto investments

Synopsis

Many investors who invest or trade frequently in cryptocurrencies are rushing to their advisors to figure out the tax implications of their investments, even as the government looks to introduce a legal framework around cryptocurrencies. Investors want to know the income tax implications on their returns, which can range anywhere up to 30%, say tax experts, given the regulatory vacuum around cryptocurrencies.

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.Mumbai: Many investors who invest or trade frequently in cryptocurrencies are rushing to their advisors to figure out the tax implications of their investments, even as the government looks to introduce a legal framework around cryptocurrencies. Investors want to know the income tax implications on their returns, which can range anywhere up to 30%, say tax experts, given the regulatory vacuum around cryptocurrencies.

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,” said Sudhir Kapadia, national leader-tax at EY India.
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“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.”

Many investors have made substantial returns from cryptocurrencies and have even squared off some of their positions, say tax experts.

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.

This comes at a time when the government is looking to come up with a cryptocurrency law.

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, ET first reported on September 3.

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 ET.

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 crypto currency for another crypto currency, 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 soft wallet to another without consideration), computation of income on cryptos and the tax rates, indexation, deductions allowable on such income,” said Yashesh Ashar, partner at tax advisory firm Bhuta Shah & Co.

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Updated: 11/18/2021 — 00:00