Income Tax Returns | CA in Mumbai | Chartered Accountant | ITR Filing

Potential Tax liability on Cryptocurrency in India

You have a Potential Tax liability on Cryptocurrency in India if you have engaged in any of the following activities: 
  • Traded Cryptocurrency in an exchange
  • Earned Cryptocurrency from mining
  • Received Cryptocurrency as a gift or inheritance
  • Used a foreign Cryptocurrency exchange
  • Invested in or issued an ICO or STO or IEO
  • Running your own Crypto Exchange
  • Having your own token or coin
  • Registered company abroad or
  • Running a Cryptocurrency Business

Hopefully, by now, you've already enlisted a Crypto Tax Advisor for professional help in preparing your taxes. Including what you need to report, what you owe, and which forms you need to file for your Cryptocurrency activities. Obviously, each person's tax situation is very unique.

We will discuss a few pointers where Cryptocurrency users must be extra careful & need to maintain each and every detail for reporting. In the last few months, we received a few cases where our clients received legal notices related to Cryptocurrency transactions. Few guys believe that how will the income tax department ever know that you have Cryptocurrency? Actually, it's a lot easier than you think. If you've traded more than X amount or had over X number of transactions on a Cryptocurrency exchange, regulators require the Cryptocurrency exchange to report your activity directly to them.

On top of that, thanks to public distributed ledgers and subpoenaed documents from Cryptocurrency Exchanges, it is very simple for tax authorities to trace every single transaction one has made. The days of Cryptocurrency exchange anonymity are over -  See the latest report on ED notice to WazirX.
With heightened KYC & PMLA (Anti Money Laundering Law) and the rise of Cryptocurrency chain analysis companies, it is easier than ever to connect wallets to the people behind them. Basically, don't think your activity is private. It's not. Choosing not to report your Cryptocurrency transactions may land you with a variety of penalties. This includes criminal prosecution, some years in prison, and fines of up to X amount may be considered by the government in the near future.

If one has Cryptocurrency then be ready to pay tax reporting for following activities in India 

Foreign Account Reporting

Have you used a foreign exchange or foreign-based wallet in the last year ? If so, chances are that you have a few more forms to fill out.

Cryptocurrency Tax requirements for transactions

If it comes under Capital Asset Category then, given the differing capital gains tax rates for long-term vs. short-term holdings, these two methods can give you slightly different tax obligations.

Cryptocurrency as Gifts or Inheritance

Cryptocurrency received as a gift follows the standard rules of all major gifts. Gifts up to Rs 50,000 in a financial year are exempt from tax. However if you receive gifts higher than this amount, the entire gift becomes taxable. For example, if you receive Rs 75,000 as a Cryptocurrency gift from your friend, the entire amount of Rs 75,000 would be added to your income and taxed at your slab rate

Taxation of ICO/STO /IEO/ DeFi investments

STO - Security Token Offering

The acronym STO stands for Security Token Offering, an increasingly important concept in the financial world. STO is a process in which investors are issued a crypto coin or token. Cryptocurrency taxes for STO investors. In the case of STOs, it's clear that the tokens are sold as part of a securities offering. As a result, these tokens can be classified in the same way as traditional securities.

ICO - Initial Coin Offerings

ICOs are another form of cryptocurrency that businesses use in order to raise capital. Through ICO trading platforms, investors receive unique cryptocurrency “tokens” in exchange for their monetary investment in the business. For ICOs, let's assume their tokens are considered 'goods'. This means they do not qualify as securities offerings. As a result, issuers may be liable for income tax from the moment the initial sale of tokens takes place.

Regulatory Uncertainty around Cryptocurrency

One of the biggest challenges facing Cryptocurrency today is regulatory uncertainty. Unsure of the law and how it applies to their projects, many Cryptocurrency entrepreneurs are hesitant to take action. After seeing other projects fined hundreds of thousands of dollars for being out of compliance in the USA  and No clearity from RBI or Finance Ministry, they are understandably nervous about making the same mistakes.