FAQ about Cryptocurrency Taxation

Below are few FAQ about Cryptocurrency Taxation. This post is based on CA or Chartered Accountants perspective on Cryptocurrency Taxation. For any other questions, please schedule an appointment. 

FREQUENTLY ASKED QUESTIONS

1) Is it legal to hold, trade or invest in cryptocurrencies in India?

There is no explicit ban on holding/trading/investing/dealing in cryptocurrencies.

The only prohibition in place is on banks, regulated by the RBI, from providing banking access/services to any individual or entity dealing in virtual currencies.

2) Do I have to pay tax on income or profits earned from cryptocurrencies?

Absolutely. It is essential to declare such income in the Income Tax returns and pay tax accordingly.

While investing or trading in cryptocurrencies is not illegal, any income earned thereof on which tax is not paid would be deemed as illegitimate wealth.

3) What is the rate of tax applicable to income from cryptocurrencies?

Depends upon the nature of activity undertaken with cryptocurrencies. The rate of tax would differ for investors vis-à-vis traders, miners or blockchain businesses.

4) What if I don’t pay tax?

The Indian Income Tax Department can obtain information on persons/entities holding cryptocurrencies from various sources.

In case a person/entity is found to have evaded taxes, severe penal provisions under the Income Tax Act would become enforceable.

5) Do I need to report cryptocurrencies held/traded outside India?

Yes.

In case you are an Indian Resident, all assets held outside India are required to be disclosed in the Income Tax return. Further, any income earned from such assets shall be chargeable to Income Tax in India. Failure to do so can invite severe penalties under the Black Money and Imposition of Tax Act, 2015.

6) How do I monitor all my transactions and track profits/gains?

We at CA Mitesh and Associates will help you maintain a consolidated and up-to-date record of all transactions and incomes earned from any Blockchain or cryptocurrency exchange.

7) How do I compute and report my Income Tax liability?

We at CA Mitesh and Associates will help you to comprehensively ascertains any and all tax liabilities, followed by assistance in completing and filing Income Tax Returns.

8) Can I receive an Income Tax notice?

Yes.

A notice may be served under several circumstances including non-reporting of income, shortfall in payment of tax or non-disclosure of foreign assets/holdings.

9) What happens when I receive an Income Tax notice?

The tax assessment notice shall need to be responded to via personal representation or a written submission.

We at CA Mitesh and Associates will handle end-to-end assessment procedures. All responsibilities of corresponding with the Income Tax Department are handled, ensuring least possible inconvenience to our clients.

10) How is crypto tax calculated?

You can be liable for both capital gains and income tax depending on the type of cryptocurrency transaction, and your invididual circumstances. For example, you might need to pay capital gains on profits from buying and selling cryptocurrency, or pay income tax on interest earned when holding crypto.

11) I lost money trading cryptocurrency. Do I still pay tax?

The way cryptocurrencies are taxed in most countries mean that investors might still need to pay tax, regardless of if they made an overall profit or loss. Depending on your circumstances, taxes are usually realised at the time of the transaction, and not on the overall position at the end of the financial year.

12) Which of your crypto activities are taxable?

Taxability doesn’t mean you will pay tax on every crypto engagement under the sun. These are the cryptocurrency trading and investment activities that require you to pay tax. These activities cut across almost all countries. 

- When you sell your cryptocurrency for fiat (USD, GBP, INR, AUD, JPY, EUR…)
- Exchanging your cryptocurrency for another cryptocurrency
- Using your crypto assets to pay for goods or services
- When you receive cryptocurrency as earnings (either through mining or as payment for services offered to a third party)

13) Which of your crypto activities are Non-taxable?

Not all cryptocurrency engagements attract taxes. Here are the activities you don't need to pay taxes on: 

- When you move your cryptocurrency from one wallet to another or between crypto exchanges. 
- Donating cryptocurrency to a non-taxable charity organization
- When you buy crypto with fiat 
- When you give cryptocurrency as a gift to a friend or family. 

Disclaimer: The contents of this article are for information purposes only and do not constitute an advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc before acting on the basis of the above write up.  The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that we are not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof. CA Mitesh and Associates is Mumbai's leading Cryptocurrency Taxation Firm which is committed to helping people navigate complex tax laws and banking regulations. Our main aim is to assist the individuals with applicable laws & regulations compliance and providing support at each & every level to make sure that they stay compliant and grow continuously. For any query, help or feedback you may get in touch here - Appointment with CA

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