Despite growing interest in the cryptocurrency market, there is still a lot of confusion about which crypto-currencies can be considered as taxable. The government of India has introduced a new tax regime for investors that came into effect from 1st April 2018. This would mean that people holding cryptocurrencies will have to pay taxes on their investments. As part of this move, the Indian Income Tax Department has released guidelines pertaining to taxation and investment in cryptocurrencies.
The introduction of this law had also prompted many software providers to release cryptocurrency portfolio management tools specifically designed for individuals with wealth held in crypto currencies such as Bitcoin and Ethereum.
Taxation of Cryptocurrency In India and Crypto Portfolio Management Software
Bitcoin and other cryptocurrencies are considered as securities, similar to equity and fixed income investments. Accordingly, cryptocurrencies are subject to capital gains tax, or a layer of tax above the regular income tax rate. This is because the value of cryptocurrencies increase over time – particularly as they become more popular – which means that their total value increases over the period that an investor holds them. This can lead to capital gains when an investor sells his/her cryptocurrency holdings, or even just before retirement. A person’s capital gain from selling these assets must be recognized in terms of income and not profits.
The total capital gain must be included in the total income for the year. This means that the sale of any crypto asset that is above a certain threshold must be reported for taxation purposes. For example, if an investor sells Bitcoin worth INR 30,00,000 ($4200) which he/she had bought at a value of INR 10,00,000 ($1500) in 2017, then there would be a capital gain of INR 20,00,000 ($3000). The investor would need to pay tax on this amount.
The market capitalization (market cap) of Bitcoin and other cryptocurrencies has grown significantly since their inception over a decade ago. People holding cryptocurrencies such as Bitcoin and Ether have a large unrealized gain as the value of their assets continue to grow.
What Are The Taxation Details?
There are three key areas which are quick to understand – they are:
- Income tax reporting on capital gains from crypto assets.
- Tax on crypto tokens received by startups in exchange for equity.
- Crypto mining income.
Income tax reporting on cryptocurrencies
The following points summarise the income tax reporting guidelines on cryptocurrency:
- An individual taxpayer who holds cryptocurrencies can include the total market value of his / her holdings as a part of his taxable income in the previous year. However, if he / she makes a sale within a period of one year, then this amount would be included in the current year’s income.
- Of course, if an investor sells all of his/her crypto assets before the end of the financial year, then there will be no need for any accounting since there is no capital gain to consider.
- An investor can include an unrealized gain from selling or trading crypto assets as part of his taxable income.
- If an investor holds Bitcoin or any other asset that is categorised as an investment, the individual can include half of the gain, in terms of his taxable income.
- An individual who earns interest income through crypto-currencies would need to pay tax on cryptocurrency in India on the total amount, on a yearly basis.
- If you are interested in crypto tax management software and looking for the platform, then I will recommend you to use Binocs. Binocs is one of the best software which is available in India related to crypto portfolio and taxation.