Cryptocurrency traders or investors are seeking advises from their advisors to figure out the tax implications of their investments. They want to know the income tax implications on their returns, which can range anywhere up to 30%, say tax experts, given the regulatory vacuum around cryptocurrencies.
This comes at a time when the government is looking to come up with a cryptocurrency law and looks to introduce a legal framework around cryptocurrencies. The government is planning to define cryptocurrencies in the new draft bill and will treat them as an asset/commodity for all purposes, including taxation, as reported by ET.
Tax experts are divided as to whether the returns from crypto assets must be categorised as capital gains-what is applicable on assets such as equities or real estate – or business income. Tax experts say that tax on cryptocurrencies will also depend on how the government defines the asset.
“As regards tax treatment of sale of cryptocurrency held by individual investors, the principles governing taxation of securities as capital gains versus business income would equally apply in respect of cryptocurrency assets,” said Sudhir Kapadia, national leader-tax at EY India.
“In other words, if the frequency and number of purchase and sale transactions is very high, the tax authorities may be inclined to assert business income characteristics for these transactions.”
The draft bill also moots proposals to compartmentalise virtual currencies based on their use cases into payments, investment/security, and utility (source of income), people close to the development told ET.