The Indian government plans to compartmentalize virtual currencies and their tax treatment based on their use case: payments, investment, or profit. Crypto The trade is likely to see a formal tax structure, as the Ministry of Finance has formed a committee to find out if the income earned from crypto trading could be taxed.
Ketan Dalal, founder of Katalyst Advisors, said that cryptocurrencies are a fledgling asset class, even for tax experts, and no separate guidelines have been issued for this asset class. It will be helpful if the government clarifies taxes on cryptocurrencies, he added. "The picture will be clearer once an encryption bill goes into the public domain."
Unlike listed securities, where short-term capital gains are applied at a fixed rate of 15 percent, income from cryptocurrencies is taxed according to the investor's tax table, with a tax of the 4 percent. If an investor's total taxable income, excluding short-term gains, is below taxable income, ie Rs 2.5 lakhs, this deficit can be adjusted against short-term gains. Long-term capital gain on crypto assets attracts a 20 percent capital gains tax, where the investor will benefit from indexing. "If the shares are held for more than a year, it is considered a capital gain. But no such criterion is set for cryptocurrencies," Dalal said. "The tax rules on such assets should be applied like any other capital asset."
There is no embargo on cryptocurrencies, making them an exception, said Amit Singhania, a partner at Shardul Amarchand Mangaldas and Company. Unlike listed securities, where short-term capital gains are applied at a fixed 15 percent, income from cryptocurrencies is taxed according to the investor's tax table, with the applicable surcharge and a 4 percent tax.
Investors can offset any short-term capital loss from the sale of equity shares with the short-term capital gain from any equity asset. If the loss is not fully compensated, it can be carried forward for 8 years and adjusted against the short-term capital gains obtained during these 8 years. According to market experts, a taxpayer can only carry losses if they have filed their income tax return within the due date.
Classifying the gains from crypto assets as business income or capital gains is entirely dependent on the facts and circumstances of each case, Singhania said. If a person frequently trades such assets or their livelihood is dependent on income derived from trading cryptocurrencies, such earnings are classified as business income.
Navneet Dugar, advocate and lead consultant at Zemis Advisors, said that if income from cryptocurrencies is classified as business income, it will be taxed at the applicable rate for business income taxation. If income from cryptocurrencies is not classified as business income or capital gains, it will be counted as income from other sources. This is known as residual income. "In such cases, the tax rate applied will be 25 percent for companies, while individuals will be taxed according to their respective slab tax rate, after adding the profits to their income."
If the government classifies cryptocurrencies as an asset or a commodity, the existing rules are likely to continue. That may change if there is a separate code or guide for taxing digital tokens.
Sharat Chandra, a blockchain and emerging technology evangelist, said that people who earn more than 50 lakh rupees a year are required to disclose their holdings according to the Income Tax Law. "A compensation rate will be applied if the sale is made through an international market platform," he added.
NFT it can represent the right to use underlying assets, which are tangible in nature, Chandra said. "A product is sold on an exchange without physical delivery. In such a case, the tax treatment would be the same as in a commodity transaction."
