Making money from cryptocurrency trading? Know how your earnings are taxed

Introduction

People realized the necessity of having a passive income source after two lockdowns in a row. Some created businesses from their houses, while others put their money into IPOs and digital yuan. Many others, on the other hand, opt to invest in various types of  cryptocurrency. According to research, India is expected to have over 10 million crypto investors by 2021.

It is clear that in India, skepticism and unhappiness with the bitcoin culture are steadily declining. People are seeing it as a fantastic chance to generate money. People in India are concerned about cryptocurrency taxes, despite a tremendous increase in cryptocurrency traders and investors. They are worried about the future of our country.

The following are the tax consequences of cryptocurrency trading.

Cryptocurrency Taxability

The Reserve Bank of India (RBI) has yet to issue Bitcoin or any other cryptocurrency legal tender status in India. As a result, no clear regulations or principles establish the taxability of cryptocurrencies, necessitating further clarification from the Internal Revenue Service (IRS).

However, avoiding paying taxes on revenues from the selling of cryptocurrency is not a smart idea. Except for those specifically exempted, all income is subject to taxation. This implies that bitcoin investors will have to pay taxes on their investments.

The kind of investment

Profits from bitcoin sales by Yuan Pay group may be taxed as business income if exchanged regularly or as capital gains if retained for investment. Earnings from a firm may be taxed at the applicable slab rate. However, if it is kept for investment reasons, it may be subject to the same taxes as capital gains.

It also indicates that if taxpayers use their assets before three years, they will be subject to short-term capital gains taxes based on the appropriate tax slabs.

Meanwhile, other experts argue that cryptocurrency gains may be recognized as income from other sources, although profits from frequent trading might be speculative company revenue. However, further information and discussion will be necessary to comprehend the regulations fully.

What about the mining industry?

Mining-generated cryptocurrency is a self-generated capital asset that may be taxed as a capital gain. However, it is not recognized under Section 55 of the I-T Act 1961, which deals with purchase and upgrading costs.

Cryptocurrency mining, according to YuanPay group, might be deemed a taxable activity. The coin’s fair market value, also known as its cost basis, is the price it was mined.

The equipment and resources used in mining may be deducted as a business expense. Those deductions differ depending on whether you mined cryptocurrencies for personal or financial benefit. If you own a mining company, you may take advantage of tax deductions to lower your tax burden. These deductions, however, are not available if you mined cryptocurrency for personal benefit.

Earnings from cryptocurrency must be disclosed.

It is common knowledge that taxpayers with an annual income of more than Rs 50 lakh must reveal their assets and liabilities, as well as the cost of purchase, in the Schedule of Assets and Liabilities. Taxpayers must include cryptocurrencies in the schedule.

Taxpayers and ordinary residents are also required to report foreign income and assets on their tax forms.

To date, there have been no official declarations or standards regarding bitcoin acceptance and taxation. As a result, we must wait for official instructions to learn more about cryptocurrency taxes.

Crypto classification

If you buy a digital token for investment, it’s considered a capital asset, which means you’ll have to pay capital gains tax. Depending on the holding time, these investments are classified as long-term or short-term capital gains.

Long-term capital gains would apply to profits made after owning a cryptocurrency for 36 months or longer, while short-term capital gains would apply to improvements made in a shorter time. According to Harsh Bhuta, partner at accounting firm Bhuta Shah & Co, short-term capital gains are taxed at a flat rate of 20% with indexation, while long-term capital gains are taxed at a flat rate of 20% with indexation.