New Delhi: While the much-awaited cryptocurrency A bill to be introduced in the winter session in Parliament has been delayed, with the Center preparing to adjust the income tax rate for cryptocurrency investors in the upcoming budget. Many are already paying taxes on gains from the sale of cryptocurrencies in the form of ‘capital gains’.
As of now, the government has not yet granted any status of legal tender to cryptocurrencies. In 2018, RBI tried to impose restrictions by restricting banking facilities in crypto exchanges. However, the Supreme Court lifted the ban. The government is making changes to income tax laws to bring cryptocurrency into the tax net, and some changes that could be part of the 2022-23 budget. The Center is likely to classify cryptocurrency as a ‘capital asset’ during the upcoming budget, similar to US and UK regulations. According to the Economic Times, the tax burden on cryptocurrency investors can increase to anywhere between 35 and 42% on crypto assets.
capital asset
“Under direct taxes, gains from crypto can be classified as ‘capital gains’ if they are classified as ‘capital assets.’ When classified as capital gains, the immediate next The question is, what should be the holding period for these assets. Short term or long term. We recommend a tenure of 3 years; Assets holding more than 3 years should be considered as long term assets. Now the next question arises whether cost indexation should be allowed and if a concessional rate of tax of 20% should be considered for long-term holding.Short-term gains are taxed at slab rates, says Gupta of Clear.
In short, short term Capital gains tax Can be imposed if the crypto asset is held for less than three years. If the crypto-assets are sold after holding the investment for three years, they will be considered a long-term investment and will be taxed at 20% along with indexation gains.
So, what is this confusion about business income?
Those who trade in cryptocurrencies frequently, i.e. they have high volume transactions with high frequency and exit short term without the intention of making profit in the long term, should report this as business income .
“When any income is reported as business income then any related expense is allowed to be claimed. Such net income is taxed as per the applicable slab rates.
What about GST?
Another aspect of reporting as business income is whether GST should apply. “The Goods and Services Tax may apply to the purchase and sale of cryptocurrencies because it can be treated as a supply of goods or services. The Central Bureau of Economic Intelligence (CEIB) has decided to classify cryptocurrencies as intangible assets and all cryptocurrencies. It is proposed to introduce GST on transactions. Since the government has not yet defined its tax potential and the proposal is under discussion, the normal rate of 18% may apply going forward.”
income from other sources
Crypto-assets can also be reported as ‘income from other sources’ at the time of filing income tax returns and then taxed as per the applicable tax slab of the taxpayer.
Furthermore, income from crypto assets is treated as ‘speculative trading income’ and taxed as per the highest tax slab. However, until a clarification is received from the Income Tax Department, taxpayers can benefit by classifying it as capital gain or ordinary business income.
TDS/TCS on buying cryptocurrencies
Nangia Andersen LLP Tax Leader Arvind Srivatsan said that the government may also consider levying TDS/TCS on sale and purchase of cryptocurrencies above a certain threshold and specified transactions for the purpose of reporting such transactions to the Income Tax authorities. should be brought within range. As stated by PTI. Also, a higher tax rate of 30 percent should be imposed on income from the sale of cryptocurrencies, similar to winnings from lotteries, game shows, puzzles, etc.
How big is the Indian market for cryptocurrencies?
According to market research firm Chainalysis, India has around 15 million crypto investors, and is the second largest country in the world in terms of global crypto adoption. India’s market grew 641% over the past year and Pakistan’s by 711%, shows data analyzed by Chainalysis, using a metric that estimates the total cryptocurrencies received by a country.
“Transfers of large institutional size, valued at more than $10 million, represent 42% of transactions sent from India-based addresses, compared with 28% for Pakistan and 29% for Vietnam,” the report said. of larger, more sophisticated organizations.” India now has two crypto unicorns and over 350 crypto startups.
How are they being offered as ESOPs in India and how will it be taxed?
Many cryptocurrency exchanges have launched their own tokens and are offering them similar to an employee stock ownership scheme (ESOP) to their employees as part of their annual compensation. It also links to employee performance in certain circumstances. Apart from exchanges, issuance of tokens to employees as an incentive is also becoming popular among startups. However, according to tax experts, cryptocurrencies or coins given to employees should be taxed on their actual market value in the year the employee received them. Income tax will be applicable only when the employee actually gets the money.
“There are a number of smart contract standards on Ethereum that are specifically designed to facilitate transactions in private company shares. One of the biggest benefits of ESOPs through crypto tokens is to allow further sales of stock options to private companies. are allowed to be restricted to a specific whitelist of approved parties. From a tax perspective, offering ESOPs through crypto is fraught with risk as it enters uncharted territory in income tax law. More attractive to ESOPs of eligible startups Deferred tax payment structure* for FY20 budget revision is not going to extend to crypto tokens in the eyes of Taxman. Taxman’s explanation would be that these tokens are nothing but salaries and are taxed on its market value in the year of receipt Therefore, startups should be prepared for this eventuality unless the government specifically includes cryptocurrencies in the definition of “specified security” as per the Securities Contracts Act,” said Harsh Bhuta, at Bhuta Shah & Co LLP lawyer and part Male.
Since, the cryptocurrency is still operating in the gray area, how does the crypto index help investors?
On January 1, Cryptowire, the global crypto super app, launched India’s first cryptocurrency index – IC15. The IC15 is a rules-based broad market index by market capitalization that tracks and measures the performance of the top 15 widely traded liquid cryptocurrencies listed on the world’s major crypto exchanges. As of January 16, the index was at 65,292.45, down 2,039 points (-3.03%). Bitcoin (BTC) slipped on Friday, erasing the previous day’s gains, although it remained within the trading range of around $40,000 to $44,000 over the past few weeks. Other major alternative cryptocurrencies have also declined on fears that the Federal Reserve will push ahead over the next few months to begin raising interest rates for the first time since 2018.
similar to Sensex And nifty For equities, a crypto index is designed to serve as a benchmark for the performance of a selection of cryptocurrencies that are listed on recognized, open exchanges while meeting liquidity and market capitalization criteria. This latter allows for the creation of ETF products that allow investors to invest in a group of cryptocurrencies and avoid the risk of holding a single digital currency.
“The cryptocurrency industry also offers a range of thematic investments where baskets of crypto can be generated based on a theme. are nothing but a portfolio of tokens. Intelligently aligned to track a particular topic like NFT or DeFi… An index captures most of the transaction movement, helping investors make information-driven decisions and will serve as a foundation tool for crypto enthusiasts,” said Gaurav Dahake, CEO & Founder, bitbans,
How will crypto ETFs be taxed?
“From a tax perspective, the sale of crypto ETF tokens would have the same tax effect on the transfer of any cryptocurrency. There is currently no provision under the Income Tax Act that provides for the transfer of cryptocurrency, the most likely tax situation being that Such income should be taxed as capital gains unless a seller is a businessman by business, on which they should be taxed as business income.However, a position may be taken by the revenue authorities that this Such trading is treated as speculative income which will lead to a major hindrance to investment in cryptocurrencies. The upcoming budget may provide more clarity on this burning issue,” Bhuta said.
As of now, the government has not yet granted any status of legal tender to cryptocurrencies. In 2018, RBI tried to impose restrictions by restricting banking facilities in crypto exchanges. However, the Supreme Court lifted the ban. The government is making changes to income tax laws to bring cryptocurrency into the tax net, and some changes that could be part of the 2022-23 budget. The Center is likely to classify cryptocurrency as a ‘capital asset’ during the upcoming budget, similar to US and UK regulations. According to the Economic Times, the tax burden on cryptocurrency investors can increase to anywhere between 35 and 42% on crypto assets.
capital asset
“Under direct taxes, gains from crypto can be classified as ‘capital gains’ if they are classified as ‘capital assets.’ When classified as capital gains, the immediate next The question is, what should be the holding period for these assets. Short term or long term. We recommend a tenure of 3 years; Assets holding more than 3 years should be considered as long term assets. Now the next question arises whether cost indexation should be allowed and if a concessional rate of tax of 20% should be considered for long-term holding.Short-term gains are taxed at slab rates, says Gupta of Clear.
In short, short term Capital gains tax Can be imposed if the crypto asset is held for less than three years. If the crypto-assets are sold after holding the investment for three years, they will be considered a long-term investment and will be taxed at 20% along with indexation gains.
So, what is this confusion about business income?
Those who trade in cryptocurrencies frequently, i.e. they have high volume transactions with high frequency and exit short term without the intention of making profit in the long term, should report this as business income .
“When any income is reported as business income then any related expense is allowed to be claimed. Such net income is taxed as per the applicable slab rates.
What about GST?
Another aspect of reporting as business income is whether GST should apply. “The Goods and Services Tax may apply to the purchase and sale of cryptocurrencies because it can be treated as a supply of goods or services. The Central Bureau of Economic Intelligence (CEIB) has decided to classify cryptocurrencies as intangible assets and all cryptocurrencies. It is proposed to introduce GST on transactions. Since the government has not yet defined its tax potential and the proposal is under discussion, the normal rate of 18% may apply going forward.”
income from other sources
Crypto-assets can also be reported as ‘income from other sources’ at the time of filing income tax returns and then taxed as per the applicable tax slab of the taxpayer.
Furthermore, income from crypto assets is treated as ‘speculative trading income’ and taxed as per the highest tax slab. However, until a clarification is received from the Income Tax Department, taxpayers can benefit by classifying it as capital gain or ordinary business income.
TDS/TCS on buying cryptocurrencies
Nangia Andersen LLP Tax Leader Arvind Srivatsan said that the government may also consider levying TDS/TCS on sale and purchase of cryptocurrencies above a certain threshold and specified transactions for the purpose of reporting such transactions to the Income Tax authorities. should be brought within range. As stated by PTI. Also, a higher tax rate of 30 percent should be imposed on income from the sale of cryptocurrencies, similar to winnings from lotteries, game shows, puzzles, etc.
How big is the Indian market for cryptocurrencies?
According to market research firm Chainalysis, India has around 15 million crypto investors, and is the second largest country in the world in terms of global crypto adoption. India’s market grew 641% over the past year and Pakistan’s by 711%, shows data analyzed by Chainalysis, using a metric that estimates the total cryptocurrencies received by a country.
“Transfers of large institutional size, valued at more than $10 million, represent 42% of transactions sent from India-based addresses, compared with 28% for Pakistan and 29% for Vietnam,” the report said. of larger, more sophisticated organizations.” India now has two crypto unicorns and over 350 crypto startups.
How are they being offered as ESOPs in India and how will it be taxed?
Many cryptocurrency exchanges have launched their own tokens and are offering them similar to an employee stock ownership scheme (ESOP) to their employees as part of their annual compensation. It also links to employee performance in certain circumstances. Apart from exchanges, issuance of tokens to employees as an incentive is also becoming popular among startups. However, according to tax experts, cryptocurrencies or coins given to employees should be taxed on their actual market value in the year the employee received them. Income tax will be applicable only when the employee actually gets the money.
“There are a number of smart contract standards on Ethereum that are specifically designed to facilitate transactions in private company shares. One of the biggest benefits of ESOPs through crypto tokens is to allow further sales of stock options to private companies. are allowed to be restricted to a specific whitelist of approved parties. From a tax perspective, offering ESOPs through crypto is fraught with risk as it enters uncharted territory in income tax law. More attractive to ESOPs of eligible startups Deferred tax payment structure* for FY20 budget revision is not going to extend to crypto tokens in the eyes of Taxman. Taxman’s explanation would be that these tokens are nothing but salaries and are taxed on its market value in the year of receipt Therefore, startups should be prepared for this eventuality unless the government specifically includes cryptocurrencies in the definition of “specified security” as per the Securities Contracts Act,” said Harsh Bhuta, at Bhuta Shah & Co LLP lawyer and part Male.
Since, the cryptocurrency is still operating in the gray area, how does the crypto index help investors?
On January 1, Cryptowire, the global crypto super app, launched India’s first cryptocurrency index – IC15. The IC15 is a rules-based broad market index by market capitalization that tracks and measures the performance of the top 15 widely traded liquid cryptocurrencies listed on the world’s major crypto exchanges. As of January 16, the index was at 65,292.45, down 2,039 points (-3.03%). Bitcoin (BTC) slipped on Friday, erasing the previous day’s gains, although it remained within the trading range of around $40,000 to $44,000 over the past few weeks. Other major alternative cryptocurrencies have also declined on fears that the Federal Reserve will push ahead over the next few months to begin raising interest rates for the first time since 2018.
similar to Sensex And nifty For equities, a crypto index is designed to serve as a benchmark for the performance of a selection of cryptocurrencies that are listed on recognized, open exchanges while meeting liquidity and market capitalization criteria. This latter allows for the creation of ETF products that allow investors to invest in a group of cryptocurrencies and avoid the risk of holding a single digital currency.
“The cryptocurrency industry also offers a range of thematic investments where baskets of crypto can be generated based on a theme. are nothing but a portfolio of tokens. Intelligently aligned to track a particular topic like NFT or DeFi… An index captures most of the transaction movement, helping investors make information-driven decisions and will serve as a foundation tool for crypto enthusiasts,” said Gaurav Dahake, CEO & Founder, bitbans,
How will crypto ETFs be taxed?
“From a tax perspective, the sale of crypto ETF tokens would have the same tax effect on the transfer of any cryptocurrency. There is currently no provision under the Income Tax Act that provides for the transfer of cryptocurrency, the most likely tax situation being that Such income should be taxed as capital gains unless a seller is a businessman by business, on which they should be taxed as business income.However, a position may be taken by the revenue authorities that this Such trading is treated as speculative income which will lead to a major hindrance to investment in cryptocurrencies. The upcoming budget may provide more clarity on this burning issue,” Bhuta said.
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