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By Punit Agarwal
I. Introduction
Crypto taxes have slowly evolved over the years around the world.
The taxes on your crypto refer to the taxes paid on profits that you generate from your cryptocurrencies. These taxes very much depend on the jurisdiction and the type of cryptocurrency.
Generally, crypto taxes are imposed on any income generated from the purchase, sale, or trade of cryptocurrencies and other virtual assets. This can include income from mining, staking, or any other form of cryptocurrency activity.
The world of cryptocurrencies is growing at an unprecedented pace, and India is pretty much at the forefront of it. As more and more investors step into the industry, we’re witnessing more technological advancements in India. And ultimately, this has led to the government facing the constant challenge of formulating a clear policy on the taxation of these assets.
With the lack of clarity around the tax treatment of cryptocurrencies, there is a growing need to explore the future of crypto taxes in India.
However, currently in India, the taxation landscape is somehow very confusing.
The introduction of taxes in India came along with the 2022 Finance Bill, which was put forward by the Finance Minister. Cryptocurrency is not considered legal tender in India, and there is no specific law that governs it. However, the Indian government is developing a framework to regulate the cryptocurrency market and its taxation.
The introduction of Section 115BBH in the 2022 budget levies a 30% tax on profits made by trading cryptocurrencies or other virtual digital assets starting April 1, 2022. The 194S section also levies a 1% tax at source on the transfer of crypto assets starting July 1, 2022, if the transactions exceed ₹50,000 (even ₹10,000 in some cases) in the same FY.
These taxation rules apply to private investors, commercial traders, and anybody else that transfers digital assets in a particular financial year. This tax rate also applies irrespective of the nature of the investor's income and doesn’t recognise any difference between short-term and long-term gains.
These tax compliances are equally applicable and affect businesses and individuals involved in crypto sales and trades. Anytime you transfer your crypto, you’re charged 1% on every transaction. This tax on any revenue related to crypto was implemented throughout the country on July 1, 2022.
II. Current Situation of Crypto Taxes in India
While the introduction of crypto taxes in India was a sudden change, it sure posed enough (and equal) challenges for taxpayers and authorities alike.
For taxpayers, there is the challenge of accurately reporting and calculating the profits from their cryptocurrency trading. Additionally, there is the challenge of understanding the various tax regulations and filing the returns on time.
For authorities, there is the challenge of tracking the cryptocurrency transactions of taxpayers as well as ensuring that the taxes are paid on time. Furthermore, there is the challenge of regulating the emerging cryptocurrency industry and ensuring that all participants comply with the applicable laws and regulations.
However, the Indian government has also taken initiatives to regulate crypto taxes in India.
The government is looking to form a central authority to monitor and regulate the cryptocurrency industry, which was a part of the recent G20 summit.
III. Predictions for the Future of Crypto Taxes in India
There are a number of potential changes to tax laws related to crypto that may be implemented in the near future. Some of these include:
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A comprehensive tax framework applying to all kinds of crypto-related transactions.
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Allowing offsetting and carrying forward crypto losses.
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Taxation related to mining or ICOs.
The implementation of stricter tax regulations related to the cryptocurrency industry will likely have both positive and negative effects on taxpayers and the industry in India.
Talking about the pros, a proper taxation system means every participant in the crypto industry pays appropriate taxes and fulfils their tax compliances.
On the other hand, though, a lot of investors are also discouraged from stepping into the industry again due to an aggressive tax regime.
Additionally, the regulations may also lead to an increase in the cost of cryptocurrency trading, making it more difficult for traders to reap profits.
IV. Challenges and Opportunities
Despite India having somewhat of a clearcut taxation policy on cryptos, one of the main challenges faced by taxpayers in complying with crypto tax laws is the lack of clarity in the regulations.
The lack of an industry-wide standard makes it difficult for taxpayers to understand the laws and regulations surrounding cryptocurrencies and how to accurately report their taxes.
The ever-evolving nature of the industry means that the laws and regulations are constantly changing, making it even more difficult for taxpayers to remain up-to-date.
India has become acquainted with the potential of cryptocurrencies recently. If the government and the crypto industry in India work together, it can lead to a very comprehensive framework for regulating the industry. This could ultimately lead to more clarity for crypto investors, even on a consumer level.
This could also lead to the development of a fair system of taxation for everybody and encourage more people to step into the industry.
Some of the significant challenges in the current taxation framework are:
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Lack of clarity: The government has not yet formulated a clear policy on the taxation of cryptocurrencies, which creates confusion and uncertainty for investors.
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Tracking transactions: Cryptocurrencies are decentralised, making it difficult for the government to track transactions and identify taxpayers who are evading taxes. This poses a significant challenge in ensuring compliance with tax laws.
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Technological challenges: Taxing cryptocurrencies requires a thorough understanding of blockchain technology and the ability to monitor and analyse transactions in real time. This is a significant technical challenge for the government.
However, this is still easier said than done. The existing, confusing crypto tax laws could still be understood by educating investors on the applicable laws and regulations. Educating investors can not only help people understand their tax compliance better but can also help beginners feel more confident about actively participating in the industry. Here’s how it could be beneficial in the long run:
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Revenue generation: Taxation of cryptocurrencies can generate significant revenue for the government. As the market for cryptocurrencies grows, so does the potential for tax revenue.
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Encouraging compliance: By implementing clear tax policies, the government can encourage compliance and reduce tax evasion. This will also help to legitimise the use of cryptocurrencies in India.
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Promoting innovation: The cryptocurrency market presents an opportunity for innovation and the development of new technologies. By providing a clear regulatory framework, the government can promote innovation and ensure that it is aligned with the country's interests.
V. Conclusion
Understanding the future of crypto taxes is crucial for investors, especially in India. Here’s what is likely to happen in the future:
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The Indian government is likely to introduce stricter regulations and taxation laws for the cryptocurrency industry.
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The Indian government is also likely to introduce traceability and transparency measures in the industry. This means that investors will be able to accurately report their transactions and comply with the applicable taxation laws.
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On a consumer level, education and awareness of crypto are important to understand the existing taxation landscape better and do an accurate analysis of cryptocurrency tax calculation.
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And in order to do that, the government and the crypto industry should also effectively collaborate to navigate through the current taxation hurdles and even reduce theft in the industry.
One way for investors to accurately report their transactions and comply with applicable taxation laws is through education and awareness of crypto taxation rules. Additionally, collaborating with Chartered Accountants and qualified crypto tax advisors can help individuals navigate the technicalities of cryptocurrency tax calculation. Utilizing crypto tax calculation platforms, such as KoinX, can also be immensely helpful in accurately reporting transactions.
Capital gains tax on profits from cryptocurrency trading is likely to be a key area of focus for tax authorities in India. However, the government should also provide clear policies on taxation to promote compliance, protect investor interests, and generate revenue. Collaboration between the government and the crypto industry can help reduce theft, promote economic growth, and foster innovation in the financial technology space.
With increased transparency and traceability measures, the blockchain-based cryptocurrency market could see a rise in tax compliance and a decreased risk of cybersecurity threats. It is essential for investors to stay up-to-date with changing regulations and seek guidance from tax advisors to accurately calculate their tax liabilities.
Author Bio
Punit Agarwal is the Founder and CEO of KoinX, a platform that helps calculate crypto taxations in a jiffy. He has been involved in the Web3 landscape for over 5 years and has held noteworthy positions in several blockchain and crypto projects in India. Formerly, he led the Crypto Relief Fund — a $500 mn impact fund started by Sandeep Nailwal (Co-Founder of Polygon) — Punit helped in deploying and overseeing major public healthcare initiatives across India. He also advises on blockchain projects in the space of NFTs, Defi, and Creator Economy, among others.
Disclaimer
The views and opinions expressed in this article are solely those of the authors and do not reflect the views of Bitcoin Insider. Every investment and trading move involves risk - this is especially true for cryptocurrencies given their volatility. We strongly advise our readers to conduct their own research when making a decision.