Cryptocurrency investors are rushing to get tax guidance 

Even as the government attempts to build a legal framework for cryptocurrencies, many people who invest or trade often in cryptocurrencies are racing to their advisors to figure out the tax consequences of their investments. Given the regulatory vacuum surrounding cryptocurrencies, investors want to know the income tax consequences on their profits, which can range anywhere from 0% to 30%, according to tax specialists.

Tax experts disagree on whether the earnings from crypto assets should be classified as capital gains (like they are for equities and real estate) or business income.

“In terms of the tax treatment of individual investors’ sales of cryptocurrencies, the principles guiding the taxation of securities as capital gains vs business income would equally apply to cryptocurrency assets,” Sudhir Kapadia, national leader-tax at EY India, stated.

“In other words, the tax authorities may be persuaded to ascribe these transactions to corporate revenue if the frequency and volume of purchase and sale transactions is particularly high.”

Several investors have made big profits from cryptocurrencies, according to tax experts, and have even squared off some of their assets.

Most of the money has returned to their bank accounts directly from crypto wallets or through other methods, which is likely to attract the notice of the taxman.

This comes at a time when the government is considering enacting cryptocurrency legislation.

The government plans to identify cryptocurrencies in the new draught bill and consider them as an asset/commodity for all purposes, including taxation.

According to those familiar with the situation, the draught bill also considers ideas to divide virtual currencies into three categories depending on their use cases: payments, investment/security, and utility (source of income).

Taxation of cryptocurrencies, according to tax experts, will be determined by how the government defines the asset.

According to tax specialists, many investors have begun to inquire about how to tax their returns from crypto assets. “The questions concern whether cryptos should be treated as assets or goods, the exchange of one type of crypto currency for another, the valuation of cryptos, the conversion of cryptos into fiat, the taxability of consideration received in cryptos by non-crypto businesses, gifts of cryptos (i.e. the transfer of cryptos from one soft wallet to another without consideration), the computation of crypto income and tax rates, indexation, and allowable deductions.”